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Optimal Finance Daily - Financial Independence and Money Advice
3487: 4 Steps to Mastering the Cash Envelope System by Amanda Brownlow on Cash Flow Awareness
00:09:19
Amanda Brownlow explains how switching from card swipes to physical money can transform the way you think about spending
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- [00:00]
Amanda Brownlow
When you're ready to start a business,
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- [01:06]
Amanda Brownlow
this is Optimal Finance Daily 4 Steps to Mastering the Cash Envelope System by Amanda Brownlow of hellobrownlow.com My husband, Dee and I have used the cash envelope system from Dave Ramsey's methods for about six years now. We can finally say that we've mastered the art of cash budgeting. While we still put some things on our credit card fully paid off every month, we successfully use cash for our everyday expenses. I've previously posted on how we significantly slashed our budget after we first got married. The envelope system has played a huge part in that. As we're now preparing for baby number one, we have refreshed our focus and have been diligently tracking our expenses. Whenever Dee and I are approached with questions on budgeting, we always suggest the cash envelope system. I'll outline and explain why the envelope system works for our life and how we specifically use it. I know that everyone's budgets are vastly different, but this should give you a good picture of what your budget could look like on this system. Four Steps to Master the Cash Envelope System Number one Realize that your paycheck is a real and tangible thing. So many of us keep our paychecks locked in our accounts and haven't touched cash in ages. Magic Swipey cards, also known as credit or debit cards, have their place, and we do use a credit card on a regular basis, but we pay the card off every single month. With no exception. Whenever you swipe your card, what do you see? $8.75 at Starbucks, $15.50 at Target, $85 at the grocery store. It's all really just numbers you see on your smartphone screen. When you log into your bank's app, it's so easy to swipe away until your paycheck is dried up and gone. It makes you realize how much money you're spending when you have to fork over the dough yourself. To me, that's the most powerful way to impact your budget. I hate handing my cash over to the grocery store clerk or the cashier at Target, even though I know groceries and personal care items are a necessity. Pulling cash out to pay for everyday things like groceries, eating out, shopping and entertainment helped to decrease our spending because we could see the cash leaving our pockets and we were more aware of the actual costs of our activities. 2. Keep the cash out of your wallet and keep it organized. While this may sound contradictory to having a cash envelope system, it helps to keep you organized. We have a small accordion file that fits in my purse that I found at Walmart. For a dollar, I have each spot labeled with what each section of cash is for. This helps us not to confuse our grocery money with our eating out money or our shopping money with our pharmacy money. Knowing exactly how much you have left is key. Short of keeping all of your receipts, this is how we track how we're doing over the month. If you keep all that cash jammed in your wallet, you'll never know what money is allocated towards any certain category. Some envelope users also keep a ledger for each category of cash that they have. While this is a great idea, it just doesn't work for us. Personally, I keep all the receipts I get from week to week inside the accordion folder under the tab dedicated to receipt keeping. This also helps me to remember to redeem any rebates on my smartphone. Number three Assess your current budget. If you don't look at your budget and spending habits on a bi weekly or monthly basis, start now. If Dee and I can feel ourselves spending more than normal, we will do weekly checkups. Why look at your budget more than once a month? It's to make sure you don't look at your bank account or credit card statement on the 30th and say, oh shit. Using a combination of mostly cash and a little credit card like we do, it's easy to run your budget to zero in a hurry if you don't check on it. We get paid on the 1st and the 15th. Those are the dates that we do our checkups. It's also a time to pull out more cash for the second half of the month since it's not realistic for us to have bills coming out of our accounts and have a whole month's worth of cash pulled out as well. And number four, don't don't be afraid to make changes. Budgeting in today's world, when things can change so quickly can be a challenge. Understanding to be flexible with how you spend your money will help if something breaks and needs to be replaced like a car, appliance, phone, etc. We have an emergency fund for that if we think we can fit it into our budget. We adjust other categories as needed. We have an Oops, I spent money category in our spending spreadsheet because we understand that we are going to go over by a few dollars here and there. It's also there as a buffer for an unforeseen expense. Every month we add or take away categories because we understand that our needs will not be the same as the month before. Oil changes, clothes, wedding gifts, et cetera. Having the ability to adapt your budget to what's happening in your life will save you time, money and heartache. Paying cash for most expenses will help you feel that control. Happy budgeting. You just listened to the post titled four Steps to Mastering the Cash Envelope System by Amanda Brownlow of HelloBrownlow.com Imagine
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Northwest Registered Agent / Odoo Advertiser
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Sal and Hank
Hey Sal. Hank, what's going on? We haven't worked a case in years. I just bought my car at Carvana and it was so easy. Too easy. Think something's up, you tell me. They got thousands of options, found a great car at a great price, and it got delivered the next day. It sounds like Carvana just makes it easy to buy your car. Hank. Yeah, you're right. Case closed.
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Amanda Brownlow
Buy your car today on Carvana. Delivery fees may apply. Paying for everything in cash is a great tactic to rein in spending if you find yourself mindlessly swiping your credit card. When I was getting out of debt, I stopped using credit cards and paid for everything with my debit card while also tracking every dollar I spent in an app on my phone. Regardless of how you go about it, I think both cash envelopes and tracking your spending get you to the same goal. They bring more awareness to where you're spending money. I suggest pairing a cash spending only strategy alongside a budget that you're consistently reviewing and tweaking. Awareness alone isn't enough to change your habits. You need to take those insights you gained from your increased awareness and use them to strategize around your budget. I think the goal here is to get yourself to a place where you're consistently living below your means. Once those healthy spending habits are in place, you'll need to think about this stuff a whole lot less and then you can move beyond cash spending and optimize credit card usage for the reward benefits. I personally focus on credit card churning where I open a card, spend just enough to earn the signing bonus and and then move on to the next card that has a good signing bonus at the time. So I'm only ever spending on one card at a time. It makes it so much easier to track my spending as well. Now keep in mind that I only started having fun with credit cards in this way after I got completely out of debt and overcame any temptation to overspend. This only works out favorably for me because I am 100% committed to never carrying a credit card balance again and that should do it for today. Thanks so much for listening all the way through and I'll catch you tomorrow on our next episode, where your optimal life awaits.