The cash envelope system can help you stick to your budget. But it’s not a perfect budgeting method. Here is a list of some of the top cash envelope system problems and myths…and how to fix them!
The cash envelope system can transform your financial life…if you let it.
But I’m betting every bone in your body is telling you that this cash-based budgeting and spending system just won’t work for you.
You have probably come up with every excuse in the book. How do I know this? Because that’s exactly what I did!
I failed to stick to my budget each and every month. I was drowning in debt. I was overwhelmed with daily expenses and paralyzed by infrequent expenses. But still, I refused to use the cash envelope system because of my list of excuses, which I’ll politely refer to as concerns from now on.
I don’t want you to waste time getting your finances in order like I did. Today, I’m going to address some of the top concerns, problems, myths, and misconceptions about using the cash envelope system, and how to address them.
Cash envelope system problems and solutions
1. It’s too much cash to carry around
Are you concerned about losing the cash or getting robbed? I think this is a very reasonable concern, especially in today’s society where most people don’t typically carry any cash.
In the grocery store, cafeteria at work, shops around town, I rarely see anyone pay with cash – it’s always a quick, easy swipe of a credit or debit card. For years, my wallet only had cards…not even one single dollar bill.
– Fill your envelopes less frequently. Instead of filling your envelopes once a month, fill your envelopes once a week or biweekly. Instead of carrying $500 in your monthly grocery envelope, you can fill it each week with $125. That’s a lot less money to carry around.
– Only take the money you plan to spend that day and leave the rest in a safe place at home. This is also a great way to curb impulse purchases. If you don’t have the cash envelope with you, you can’t make the purchase.
2. I don’t want to spend money on a fancy wallet
With so many cash envelope wallets and pre-made envelopes available online, it may seem that you have to make a financial investment to start the cash envelope system. This couldn’t be further from the truth.
– Don’t make any financial investment into a formal cash envelope system. Get free envelopes from the bank (or use envelopes you already have at home). Write the budget category on the front of the envelope and a spending log on the back. That’s it! If you are successful with the cash envelope system for several months, you can always upgrade to more durable envelopes or a wallet, but I don’t recommend doing that as a beginner. And it’s never really required.
Related content: Free and Cheap DIY Cash Envelope Systems
3. My spouse always has the envelope I need
Do you and your husband (or wife) share grocery shopping responsibilities? If so, it can be very frustrating when you want to go grocery shopping, but your spouse has the envelope. There are a few other categories like this: fuel, kids activities/clothing, personal care, etc.
Solution (luckily there are a few!):
– Leave all the shared envelopes at home, and only take the envelope with you when you go shopping. Let your spouse know so they aren’t looking for the envelope.
– One person can be in charge of the shared envelope, but when their spouse wants to go shopping, they simply ask for the envelope.
– Split the shared envelope into two envelopes – one for you and one for your spouse. If your grocery budget is $500 each month, then create two envelopes with $250 in each (or however you want to split it – it doesn’t have to be split 50/50).
The first two solutions require you to be intentional about when you go shopping. That might sound restrictive, but intentional spending makes sure that you are buying what you need, not what you want in the moment.
4. I have too many budget categories and I don’t want to make envelopes for each category
Okay, this is the most common misconception of the cash envelope system and I believe the reason many people never start. I was guilty of thinking this, and it was just because I didn’t really understand how the cash envelope system worked (spoiler alert: you are NOT supposed to make envelopes for each category in your budget).
– Don’t make cash envelopes for every budget category you have. You should only be making envelopes for your “problem” categories – the categories that you typically overspend. For me, I always struggle with staying within budget on groceries, restaurants, personal care, entertainment, clothing, and travel. All of your cash envelopes should be variable expenses. Do not create cash envelopes for fixed expenses like rent or health insurance. I recommend creating 5-7 envelopes.
Related content: Recommended Cash Envelope System Budget Categories
5. I can’t pay some bills in cash
It’s impossible to pay some bills in cash – rent/mortgage, daycare, health insurance, car insurance, etc. So, what’s the point of cash envelopes?
– Of course you aren’t going to pay all of your bills in cash! As I mentioned above in Concern #4, only your “problem area” variable budget categories should be cash envelopes. Fixed expenses, especially those that happen every month and are big expenses, shouldn’t be paid in cash.
6. I buy a lot of stuff online
We all buy stuff online. I have purchased clothing, personal care supplies, technology, entertainment (moves, music, board games) online. I’ve even been thinking about purchasing my groceries online!
But then there is the obvious problem. You can’t send cold hard cash over the internet – you have to use a debit card, credit card, paypal, or link your bank account. Well, that seems to make the cash envelope system absolutely useless. But stop! There are several solutions, and you just have to use the one that is best for you.
– Create an “online purchases” envelope and keep it at home. When you buy something online, like a shirt from an online clothing company, you take the cash from your “clothing” envelope and put it into your “online purchases” envelope. Then, at the end of the month (or whenever your budgeting period ends), take your “online purchases” cash to the bank (or simply use it to fill the following month’s envelopes)
– Don’t make online purchases. I know this sounds like a cop-out answer, but one of the best things I did when trying to budget better and get out of debt was eliminate all online shopping. Before my online shopping freeze, I kept my mail man pretty busy. Stopping all online shopping saved me a ton of money (apparently I really didn’t need to make weekly purchases from Amazon).
7. I’ll miss out on credit card rewards
The hype over credit card rewards, whether it be cash back or travel points, is unreal. The credit card company’s promotion of their rewards feels like a combination of peer pressure and FOMO (fear of missing out). And then there is the little birdie in your ear saying “well, it can’t hurt…might as well take advantage of any offers and rewards”.
– The solution is a mental one: Remind yourself that credit card rewards aren’t going to change your financial situation. They aren’t going pay off your debt, they aren’t going to help you stick to your budget, and they certainly aren’t going to make you rich. In fact, credit card users typically spend more than cash-only users. Trust me, you aren’t going to get that extra money spent returned to you in the form of credit card rewards.
8. If I don’t use my credit cards it will hurt my credit score
I completely understand wanting to maintain a good credit score, or trying to improve your current credit score. Having a good credit score can help you in many different financial circumstances: help you buy a house, lower your security deposit, give you lower interest rates, etc. So it’s important to remember that using the cash envelope system doesn’t mean that your credit score goes down the tubes.
– Remember that if you have any type of debt (mortgage, student loan debt, car loan, medical debt, even credit card debt) and are still current on that debt (paying at least minimum payments, on time), then you are using credit and already improving your credit score. There are many ways that you can improve your credit score without the use of credit cards!
– If you don’t have any other debt, and are still concerned about maintaining or building your credit score, then you can always put one bill (a fixed expense, like a Netflix subscription) on your credit card. Just don’t use your credit cards on a daily basis or rely on them in any way.
No more excuses, just solutions
It’s so easy to come up with excuses. It is so easy to delay, delay, delay. It’s so easy to never start.
But then you never get results. Take control of your finances. Take control of your budget. Take steps to reach your goals.
Something you do now doesn’t have to be something you do forever. Budgeting with the cash envelope system isn’t a lifelong decision. Try it out. See how it works. Record how much money you save. And then make sure to use that saved/”extra” money for good.
What are some of your concerns about starting the cash envelope system?