Edit: For those of you interested in purchasing the envelope system mentioned below, I have created a link to it at the top left-hand side of this page. It is listed as Executive Envelope System.
If you are going to live without credit cards, you have to learn how to stay on a budget, balance your checkbook, wisely use your debt card, and control cash spending. For the sake of this post, “cash” will refer to actual currency: paper bills and coins!
Several personal finance writers suggest using an “envelope” system for cash management. Here’s how the “envelope” system works:
Withdraw a specific amount of cash from your checking or savings account. Separate the cash according to specific budget categories. Place the cash into individually labeled envelopes and use the cash in those envelopes to purchase items throughout the month. Common envelopes are: Gas, Groceries, Food, Eating Out, Miscellaneous.
If you are brand new to budgeting, I strongly recommend using the envelope system. It works very, very well, and it teaches discipline. Once the money in one envelope runs out, you have a choice to make. You can allocate more money from another envelope OR you can stop spending money for those particular items.
Beyond using the envelope system, here are some techniques that I use to control my cash spending.
- I limit those “convenience store” purchases that eat up so much cash. $1.39 for a 20 ounce bottled water? I purchase a 24 pack at the grocery store, and then keep them with me in the car. The same thing works for snacks. I purchase walnuts, almonds, and other nuts “in bulk” and keep a small jar of them with me in my car. So, when I want a snack, I don’t have to pay “convenience store” prices.
- I keep “change jars” in the kitchen, the laundry room, on my dresser. Whenever I empty my pockets, I have a place to put my loose change. Once a month, I gather the change and take it to the bank or use it for my daughter’s allowance. She loves counting coins!
- I talk to my kids before we go into a restaurant. My kids like to buy those little “prizes” at the front door of most restaurant chains. You know what I’m talking about: fake tattoos, those little bouncy-balls, bubble gum. These things cost twenty-five cents to a dollar a piece! If my kids have earned some money during the week, I will allow them to purchase one of these “fun things”. But, I always reserve the right to say, and I let them know this. I HATE when parents allow their children to beg for these silly things at the checkout.
- I talk to my wife at night about any cash she might need in the morning. You know how it works. Your wife is going to work, you are going to work, and the kids are going to school or daycare. At the last minute, your wife looks into her purse or you look into your wallet, and the question comes, “Do you have a few dollars?”. My wife and I used to swap the same cash, back and forth, during the month. Have you ever found yourself going through your spouse’s wallet/purse and “borrowing” some money? Of have you ever gotten somewhere and realized that your spouse “borrowed” some money from you? To avoid these headaches, discuss cash needs at night, and get prepared for the next day. A one minute conversation can save a morning of frustration.
- I think about my purchases. This might sound super-simple, but I find that most people don’t view cash as “real money”. We have become so accustomed to swiping a card or writing a check, that when we get cash we treat it as “bonus money”. Small expenditures add up. I had to learn to be responsible when using $5 and $10 bills. I think about my purchases, and I weigh the immediate benefit versus the long-term consequences. Once I am convinced that the purchase is a quality purchase, I make the purchase and I feel GOOD about the purchase.