This past week I have done a couple of podcasts on the topic of spending. Most of us out there really do not have a problem spending our money; instead we struggle with how to get our spending under control. While coaching clients, I have found that the main reason for out of control spending is the use of credit or debit cards on all purchases which often leads to overspending. To help combat that I recommended an old system that has been around for years to help people get their spending under control using cash called the envelope system.
The envelope system is a pretty simple concept. Whenever you get paid you sit down and write out checks for the amount you will need to spend on groceries, eating out, clothing, entertainment, and other expenses for the pay period. Then write on an envelope the name of the category you are using for the envelope system and put the amount you decided into that envelope. Then throughout the month or the pay period only use the amount in the envelope for that specific purpose. So for example if you get paid monthly and budgeted $100 for eating out for the month, you would put $100 into an envelope marked “eating out” at the beginning of the month. When you eat out, you can only use money from that envelope to pay for it. When it is gone, it is gone.
Using the envelope system will help prevent you from going overboard on your spending on a particular category. It will also lead you to buy less and make fewer impulsive purchases because you are less likely to spend your hard-earned cash then simply swiping your credit card. Only use the envelope system for a few things, you do not want to use it for things like utilities or gas, but instead use it for discretionary spending. It can be scary to start spending with cash instead of credit at first, but over time you will get more comfortable with it and you will soon experience the power of cash.
So what has been your experience with the envelope system?