Cash envelopes are used as a method of budgeting where you withdraw cash directly from your bank account each month after you receive your pay cheque (or weekly if you are paid weekly) and after you have paid any direct debits. You then split the cash into categorised envelopes according to your budget. Usually, you will write the category on the front of the paper envelope, for example, ‘groceries’ and then write down the total amount that is inside the envelope.
You can get started with using cash envelopes for budgeting as soon as your next pay cheque comes in. But before starting to use cash envelopes, you need to determine your budget if you haven’t done so already.
This means that after all of your direct debits and bills are settled, you need to split the remaining money into categories such as groceries, fuel, entertainment, clothing etc. Make sure that the categories are tailored to you, and then go ahead and make as many envelope categories as you need. You can always go back and tweak the categories the following month if you need to make any changes.
Most people use cash envelopes for day to day household budgeting, but you can also use them when you are on holiday to help keep your spending under control. On holiday you might use categories such as restaurants, excursions, taxis and gifts to ensure that you come in on budget rather than running out of cash unexpectedly.
You can also use an envelope system to store some ‘emergency’ cash- this could be an envelope that you keep safely in your home that holds a sum of money for unexpected expenses. This could be things like a train ticket to see an unwell relative, a replacement appliance, or even a wedding gift. If you don’t trust yourself not to spend any spare money in a bank account, this might be a good way of making sure you always have a cash safety net.
Cash envelopes are also a good way to accumulate money for events such as Christmas, where you can put one envelope aside and build up a little wad of cash slowly in the months leading up to the big day. If you think this could work for you, the sooner you put this into practice the better. You won’t notice small amounts coming out of your account every month, but you will most definitely notice a lump sum coming out in December!
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