Cash Envelopes - it’s nothing new right? Well that may be true, but in 2020 with all the changes the world went through, change was inevitable when it came to using a cash envelope system. The Digital Cash Envelope was the only way forward for me and it may well be the only way forward for you.
During 2020 lockdowns occurred multiple times and unexpectedly all over the world. Australia was no exception, especially in the state I live in (Victoria). During that time a majority of Australian retailers requested customers paid via card only. This was new to some people especially the elderly. I can't tell you how many times the person ahead of me was struggling with this new concept. It was actually very surprising. For those of us that were use to paying via card, most switched to the ease of more regular online shopping. Online overtook so much that major stores such as our supermarkets created thousands of new jobs just to meet the new found demand.
In light of the changes, people like myself were forced to change their usual ways when it came to using a Cash Envelope System. Using cash only and keeping a tight rein on spending was now more challenging, yet still highly needed. I quickly learnt I needed to figure out how I could use the Cash Envelope System in this new world - in a now more prominent digital cash world.
The Original Cash Envelope System
So what is the CASH ENVELOPE SYSTEM? Pre-COVID the cash envelope system was having different envelopes for different expenses or savings goals. Each contained physical cash them either accumulating towards a savings goal or in the amount of a required expense budget that you would use regularly eg groceries.
For Expenses - In the case of using for an expense such as groceries you would write your starting balance eg $200 for groceries and place the cash inside. Then every time you spent something from the envelope, you placed the receipt inside and minused what you spent, writing the new balance on the envelope.
For Savings - When instead using a cash envelope as a form of savings, you date and update the balance every time you place money into the cash envelope. If you ever remove an amount of money then you adjust as you would on an expense cash envelope.
It is very much going back to the old days, but well worth it to have a better handle on your money. The plus side to this system is that when you physically have cash in your hand and see it reducing or increasing with savings, you are more conscious of what you are spending. Really it is all just a psychological thing. Our minds tend to be more responsible when we are seeing the money up or down, rather than it unseen in a bank account.
Changing To Digital Cash Envelopes
We’ve already established that using cash only in todays world is not realistic. A new way is needed and one that understands its original concept. That is where a Digital Cash Envelope comes in. It may not be suitable for all of your expenses/savings, but it will be an option you will mostly choose from here onwards.
So how does it work? You still use a physical Cash Envelope for recording your purchases, but the main difference here is that you are using digital cash (your ATM card) out of a bank account rather than physical cash in the envelope. The bank account is separate to your other bank accounts and contains only your budget $ amount for that particular category. That means when it comes to groceries, you open a bank account to hold your grocery money and nothing else. You do not have money going in or out of that account unless it is for purchasing groceries. ONLY USE THIS BANK ACCOUNT FOR WHAT IT IS INTENDED FOR.
We call it a Cash Envelope still because you use the physical cash envelope in your hand to track all money coming in and out of that category bank account. You still use the tracker on the back and you still keep all of your receipts inside of the envelope. Every cent is accounted for and it allows you to really reflect where needed in order to meet your spending targets.
Steps To Setting Up & Using A Digital Cash Envelope
You can use the following steps to set up any expense/savings category in your regular paycheck budget.
To set up a CASH ENVELOPE (specifically the This Mum At Home design here) take the following steps:
1. Decide Expense/Savings Categories - Write down each category you wish to make a Cash Envelope for. These can be both regular expense categories such as groceries, petrol, beauty etc or savings goals such as family vacations, Christmas, birthdays etc.
2. Cash Or Digital? - Decide what type of Cash Envelope each category will be. Will it be an original Cash Envelope filling with physical cash or a Digital Cash Envelope used for tracking and receipts only and cash going in and out of a specific separate bank account?
3. Set Up Bank Accounts - For any Cash Envelopes you have deemed Digital Cash Envelopes you need to set up separate bank accounts for each category. Do not combine categories together in one bank account as it will be too hard to track. Explore your banks options on doing this. Be sure to open bank accounts that do not have fees. I myself are with NAB and I do not have fees on any of my 10+ bank accounts! I would also recommend not having debit cards attached to all your accounts, only to those that you really need on a regular basis such as groceries. If you do not have a debit card attached to accounts such as vacation savings, you are less likely to go spending that money when you shouldn't. Instead you will think twice before transferring funds into a card account to spend.
4. Print - Print out your cash envelope printable. For a longer lasting envelope you can use a thicker quality paper you can easily fold, rather than your regular paper. For cash envelopes that you need regularly such as for groceries regular paper is fine, as you will need to replace often filling in the back more often than other categories. If you're using a cash envelope long term eg saving for a child’s birthday then the tougher paper works best.
5. Name Your Envelopes - Write on the front of your envelopes each category eg groceries, vacation, Christmas etc.
6. Cut & Fold - Cut out your envelope as neatly as you can. Place face down and fold each side, one at a time, inwards along the dotted line and then back out again.
7. Putting It Together - Fold the two smaller sides in first, then the side that has the MONEY TRACKER next. Tape the sides to form your envelope. You can use glue, however in Australia because we use a lot more coins than other countries like the USA, tape is a better option to keep it together through its day to day use. Lastly fold down the last flap. You now have a usable envelope!
8. Setting Up The Details - On the front write whatever cash category it is going to be used for eg groceries. On the back top fold fill in either the ‘exp. budget’ $ figure (which is what your budget is for that particular expense eg groceries $200 for the week) or your ‘savings goal’ $ figure (which is your goal dollar amount you're saving towards eg family vacation $2,000).
9. Using The Money Tracker - Filling in the money tracker helps you keep track of the money you spend or save depending on which purpose you are using the cash envelope for.
[When Using As An Expense Cash Envelope]
When adding money - You need to put the date you are putting money into this envelope, then fill in the $ amount in the ‘+/- $’ column. You should always specify that it is ‘+’ $ when putting money in eg +$50. Under ‘Reason’ I like to write ‘save’, even if it is a regularly used envelope such as groceries.
When removing money - Whenever you spend money from the envelope fill in each column. For example if I spent $20 at Aldi and my starting balance was $200 I would write the date I spent the money, the amount I spent ‘-$20’, ‘Aldi’ for the reason and then the new balance that is either left in the grocery bank account or in the physical envelope if using cash. In this example it would be $180 left.
[ When Using As A Savings Cash Envelope]
In the case of using the envelope for saving every time you add money to the envelope you write the date, the dollar amount you are adding eg ‘+$10’ in the ‘+/-$’ column, write ‘Savings’ under ‘Reason’ and then the new $ balance in the ‘Balance $’ column. The money tracker for this kind of envelope helps you see as you save. It’s a great way to keep you motivated.
10. Adding Real Cash - The last thing you do when setting up your cash envelope is to add real physical cash into it. In the case of a Digital Cash envelope, that would be into the separate bank account you have for that category eg groceries. Do this on the day you pay your bills etc. to help stick to your paycheck budget and have the correct amount.
The Cash Envelope is a vital tool in helping you stick to your budget paycheck to paycheck. Even though the world has changed and we are gearing towards an even more digital world, a Cash Envelope is still a tool that can be used. Watching your physical cash as it’s being spent makes you much more accountable for each dollar as opposed to swiping or tapping that card aimlessly!
If you would like to see how I have set up my Cash Envelopes for this year take a look at this video on the This Mum At Home You Tube Channel. You can also purchase my set of 16 cash envelopes here in the shop - ALSO don't forget VIP Lounge Members get for FREE using your shop code!