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The Envelope System Explained: Is It Right for You?

Nobody uses paper money anymore. Well, at least most of us don’t. The vast majority of us get our paychecks deposited directly into our checking accounts and then we swipe away to pay for food, gas, entertainment, clothes and other needs. But what if we were to go back to using cash? Are there any benefits to pocketing paper money and leaving the debit card at home? Turns out, there are. Taking out cash is actually a great way to keep within your budget.

It’s easier to hold back on spending when you can see exactly how much you have to work with. In the case of debit cards, it’s much easier to blindly swipe away until you’re almost broke. The only problem is, organizing and paying for your expenses with cash can get tricky if you don’t have a way to separate them; enter the envelope system. The envelope system is a great way to organize your finances when dealing with cash, and here’s how it works:

Setting Up

At the start of a new month, go through all your expenses that you will need to cover. You can create categories for these expenses such as food, fixed bills, entertainment, etc. Next, divide your next paycheck up into these categories and designate the amount of cash you’ll need to cover each category in a corresponding envelope. This strategy is proven to work for people who struggle with managing their money, and it could possibly be just what you need to stick to your budget.

The Good

Probably the best aspect of this method of money management is that it makes it really difficult to go over your budget. Also, it’s nice to know that you’re the one holding your money rather than your bank. Another great perk of this method is that it takes all the guesswork out of balancing your checking account. You already know where all your money is and where it’s going, so there’s really no need to worry about managing a checking account. Plus, at the end of the month, if you have money left over in your envelopes, you can use it for entertainment, go out to eat or stash it away in a savings or retirement account.

The Bad

Not everybody feels comfortable walking around with hundreds in cash stuffed in an envelope. Sure, you could just take some cash out for that day and leave the rest at home, but what if you end up needing more? What if you forget to bring the envelope entirely, or even worse, lose it? This is where things could get a little frustrating.

If you happen to need money for gas, but forgot to bring cash from the gas envelope, you’re stuck taking out cash from the grocery envelope to gas up your car. Now you have to remember to take that cash out of the gas envelope and put back into the grocery envelope when you get home. This can be frustrating, and if you’re not mindful and organized about it, the envelope system could prove to be more trouble than it’s worth.

Helpful Tips

Here are some helpful tips to follow when implementing the envelope system. Remember that it’s an adjustment period, and because you’re not used to using cash to pay for things, you’ll have to adapt to a new way of handling your money. Consider using a coupon organizer to organize your cash into different categories. This way, all your cash is one place and you don’t have to juggle several envelopes every day. If you don’t wish to carry all your money with you everywhere you go, make it a habit to review how much money you’ll need for the day before leaving the house. Then, bring that amount plus a little extra just in case.

If you’ve found yourself searching for “title loans near me” and are struggling to keep your finances in order, give the envelope system a try. It could be a great strategy to exercise as long as you keep the pros and the cons in mind. Who knows, you might find that carrying cash and limiting what you can spend is just the thing you needed to stay in your budget all along.