Customize the Cash Envelope Budgeting System
Budgeting Tool Can be Adapted for the Specific Needs of any Family
The cash envelope system as a tool for budgeting has been proved to be an effective means of controlling family expenses. Something about having to pay cash helps to restrain the shopper when making purchases. Impulse spending is reduced. Also, figuring out how much cash to put into each envelope on each payday forces planning of expenses. However, some people feel it is like a straight-jacket, giving no freedom. The key to overcome this is to practice a degree of flexibility.
Dave Ramsey, creator of Financial Peace University, says personal financial management is 20 percent knowledge and 80 percent behavior. The cash envelope system helps with the behavior side of the equation. Learning to modify the budget for specific circumstances helps both knowledge and behavior.
Personal Budgeting Basics - Vary the Amounts in Each Envelope
All pay periods are not equal. Some weeks (or two weeks, or months) will have more expenses than usual: more groceries at Thanksgiving and Christmas; more gas in the summer; lunches during the school year; spikes in entertainment due to a special event. The amount of cash needed in any given envelope in any pay period could vary wildly. Under-spending in one pay period could result in reduction in that envelope in another period.
The key is to take time just before the next payday comes to analyze the situation and make the changes needed. If there is left-over grocery money, put a little extra in the gas envelope and top off the tanks. If gas spending was less than budgeted, add more to entertainment. If everything was below budget, load up the mad money envelope and enjoy the fruits of budgeting.
The opposite is also true, especially when starting out with a cash envelope system, and as the discipline this system creates takes hold. Not enough money might be put in an envelope, and money might be borrowed from another envelop. Several pay periods will likely be required to come to a point of equilibrium, comfort, and knowledge of how the envelope system will work.
Family Budgeting Tips - Vary the Envelopes Used in the System
To start out, most families will use some or all of the following envelopes:
- groceries
- gasoline
- food
- entertainment
- "mad money" (blow money, or discretionary)
Many adaptions of this are possible. Each adult in the family can have their own "mad money" envelope. Two gas envelopes might be needed. Entertainment might have to be split between two. As children get old enough to be taught money management, each child could have a "School Lunch Money" envelope, and be responsible to take cash from it each morning. Of course, that could lead to abuse or misuse and should be monitored by a parent.
When children become older teenagers and begin making their own decisions on clothing purchases, a "Clothing" cash envelope for each child can be useful. That encourages the teenager to budget for clothing. A leather jacket might drain the cash envelope, when other articles are needed. Or, if the teenager has been spending responsibly for some time, the extra money available becomes a lesson in how budgeting can benefit them.
Consider a Cash Card in Lieu of an Envelope
Nowadays, so many people use debit cards, and the retail marketplace is embracing them to such a degree, that paying with cash is seen as a burden. Certainly, at the gas pump, having to go to the window to pay in cash slows down the process. One spin-off of the cash envelope system is to use a special debit card or a gift card for these purposes.
On each payday, deposit a certain amount of cash into a special account whose only purpose is for those cash expenses that are more convenient to pay by debit card: gasoline, groceries, entertainment. Then always use that card to pay for those expenses. Or, load the cash needed on a gift card. A Wal-Mart gift card, for example, can be used to pay for gas at a gas station on the Wal-Mart outlot. Load the amount of cash budgeted for gasoline on that card (or divided between two cards for a two-car, two-driver family) and pay for gasoline from that.
The danger or this modification of the envelope system is that cash is not actually exchanged, and the consumer might not understand the significance of the transaction. Also, if an unexpected expense comes up and the only option is to use the cash card, the entire cash budget might be thrown askew. However, these problems also exist with a strictly cash system, so the cash card is not a true alternative to cash only.
Cash envelopes as a family budgeting tool (or even for a single adult) has been proven to help improve a family's financial situation. Adaption to the special needs of each family make the system more useful and convenient, and more likely to be used long-term.
Cash Envelope System Aids Budgeting
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