One of the things that hold people back from budgeting how difficult it can be. Between bank accounts, spreadsheets, and apps, sometimes keeping track of all those numbers is enough to make you want to quit.
People who are trying to budget their money in order to live within their means use this type of system because it helps them manage their spending habits and stick to a predetermined amount for each day of the month.
When you are using the cash envelopes for budgeting purposes, you are giving yourself the freedom to spend until it’s gone. There is a bottom to the food bucket. When you reach the bottom, you’re done until the bucket has been refilled.
- You can see when you are out of money.- Won’t go over budget because you can’t.- Helps you see how realistic your budget is and modify it.- Easier to save money.- The system is flexible.- Envelopes reduce the risk of impulse purchases.
- Takes time to get cash and separate. - Not every store takes cash. - Eliminates the convenience of online shopping - Hard to separate funds as a couple. - Harder to track spending. - Holding cash can be unsafe.
I have heard people who use the cash envelope system without cash but I wouldn’t recommend it. There are psychological benefits to holding cash in your hands and physically handing it over to pay for purchases.