Tuesday, 23 August 2011

Cash and Envelope System

In our house to help control and keep track of our spending and in line with our budget we use a cash budget.  We have been using this system for a few years now and first came across the concept when I started reading Sophie Gray's recipe books.  It's really helped us keep our spending in line.  It's particularly good if you are a card swiper then get to the end of the week and find you don't really know what you spent where or how much you have left.  Or you find yourself short.  It also helps if you tend to pop back in and out of the supermarket several times in a week.

The bonus about using cash for us and I'm sure other people is that, it is a lot harder to spend the money you hold physically in your hand than it is to just swipe an eftpos or credit card. Many a time I've gotten to our last $20 in the groceries and picked a few things up, only to return them because I don't want to part with the precious last of our cash and they were impulse purchases.  If I'd had my card, I guarantee I would have purchased them - it's the 'I'll deal with it later' thought.

Basically all you need to do is go back to the 'old ways' so to speak and use cash again.  Set your budget up and nominate the amount for your food allowance, any personal allowances, your petrol and any regular expenses/bills that you don't pay online.  Then on pay day, or just before you do your shopping go to the cash machine and withdraw all the amounts in cash.  You then keep these at home in a safe place, in either envelopes, snaplock bags, containers or the like.  Set one up for each item you have cash for.  I currently have a bag for Groceries and the Boys Allowances.  I used to operate envelopes for Meat from the butcher, the Green Grocer for the veges/fruit and a Christmas and Birthday fund, but we've evolved with our systems for these now and no longer have these envelopes. I also used to have a petrol allowance bag, however for this now, I have to use my eftpos card as I now go to the Pak N Save pumps which only take a card.  But I have set this up so the only money left sitting in my account is the Petrol allowance and I can control it.  I also only fill up once a fortnight and if I haven't used it all, I either leave it in there until the following week just in case I want to take the kids to the beach or somewhere.  Mostly though if I have left over money in my account it gets transferred to the debt. DH and I both withdraw our personal pocket money in cash also, but this stays with us. Just adapt the system for your needs.

Any time you need to spend from one of your envelopes/bags, take out the cash you need and ONLY what you need then if you have change at the end of it pop it back in with the rest of the money.  DON'T SPEND it.  Unless of course you have a justified purchase that relates to that money, i.e. if you have some money left over (I call this surplus cash) from groceries and they have a good special deal on something you normally use, use your surplus cash for this, but only if you know you don't need the money later.

By operating a cash budget, you only spend what you have.  Don't take your cards with you.  When you walk through the doors at the supermarket know that what cash you hold is all you have, so you obviously can't spend anymore than that.  If you have worked your budget appropriately then you should have the correct amount to purchase your normal groceries.  There are several tricks to making sure you don't go over, which I will go over in detail in another post.  But just briefly make sure you make a list and stick to it.  This list should only be what you need, check your pantry and fridge before heading out.  Stick to your list, and don't deviate unless you know you are wanting to stock up on specials for your stockpile and you have the amount to spare in the budget/surplus.  Take a calculator - yes I know some people find this shameful, I did to start with.  Get over it! I had to swallow my pride and take one.  I used to feel like it was a show of poverty but now for me I view it as being proud of myself for watching what I am spending.  Put things back that aren't a necessity if you run over budget.  Many a time I've stood there, pulling a pile of unnecessary stuff out of my trolley and putting it back to get myself under budget, then I sit there and wonder why on earth I put them in the trolley in the first place.  Make up a price book and calculate your shop before you go so you know how much you are spending before you enter, and you then don't need to calculate as you go. But like I said more on this later.

Any surplus you have left in your envelopes at the end of the pay is up to you what you want to do with.  You can either leave it in there to build it up for any big shops you may want to do, or for stocking up on specials.  You may want to nominate any surplus as your treat money for takeaways from time to time.  Or you might want to transfer it to another envelope for building up some funds for birthdays and Christmas.  What we do ourselves is put it into our emergency fund.  This is our savings really as anything in our operating budget goes straight to paying off the debt.  So building an emergency fund is important for us. If something happens we have the cash to pay for it, such as the unexpected vet bill for the cat.  Or you might like to take your surplus cash and put it on your debt to make some extra payments that way. You'll be surprised at how these little amounts each week or however long build up for you. 


  1. You know it works. I know it works. It's just difficult to put the plan into action sometimes. Years ago, when we were first married we tried this, but somehow couldn't stick to it. I know my MIL does it to this day.

  2. Hi Duchess_Declutter, it's a fine line hey. We've spent a few years now following through with the system, and it takes will-power, and sometimes lots of it. But the system works, it's been proven time and again, just like for your MIL. I guess it all comes down to one's mindset. If you have your mind set on scrimping and saving your pennies or even just to stop overspending as much, then I believe the will to follow through with this goal that's set, will see the plan in action working for you. If you have any other suggestions of other systems that may work, feel free to leave a comment on them, as what works for one may not work for another and this is all about sharing a common goal with each other. Hope to see you again soon :) Regards, Ruth

  3. Im sat here in the Netherlands and stumbled across your pin wheel scone recipe which is fab!! Also thank you for your honesty, realistic outlook on life, great tips and friendly blog, when I read you I feel like Im talking to a friend! xx


Hiya, thanks for taking the time to comment on my post. I can't wait to read your comments and to share ideas, I am a busy mummy with 2 boys to run around after so I will try and get to comments as quickly as I can...if there is a delay in seeing them published this is why, not because I don't care, I'm just taking some time to smell the roses :)

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