Chances are you've heard of the cash envelope system. If not, the way it works is that you set aside money in different envelopes for each type of expense. This helps you to stick to your budget. But how does it do that? Let's look at how a cash envelope system will help you stick to your budget.
You're Forced to Stick to a Budget
If you truly follow the cash envelope system, you know that you need to leave your credit and debit cards at home when you go shopping. This forces you to stick to the amount in your envelope. For example, if you're going grocery shopping and only have $200 to spend, you'll know that you can't go over that amount (and you really can't since you don't have a backup like your debit or credit card).
You'll Have to Think About What You're Buying
When you only have so much money to spend, you really think about what you're buying. If you were using your debit card, you may be tempted to throw lots of junk food into your cart and end up overspending. With the cash envelope system, you have to make choices based on the amount of money you have set aside. This will lead you to be cautious with your money and only buy what you really need.
You'll Learn to Make the Most of Your Money
You'll also learn to stick to your budget by learning to make the most of your money. For example, if you normally spend $300 a week on groceries, but have budgeted $200 a week, you will learn to do things so that you can get more bang for your buck. You might start couponing, stockpiling, etc. You'll soon find that you can do more with less.
You'll Quickly Learn What You Can Live Without
When you're forced to stick to a budget, you'll soon learn that you really don't need five pints of your favorite ice cream each week or that high-dollar cup of coffee you get when doing your shopping. You'll learn that there are things you need more than the things you simply want.
It Shows You How Much You REALLY Spend
During the first few weeks of using the cash envelope system, you'll probably go through your money faster than you thought you would. This can be eye opening and will force you to look at what you're spending money on. You may not think you're spending that much money on groceries each month, but be really surprised when your envelope empties out.
The cash envelope system is a favorite budgeting tool for many and with good reason. It helps you see how much you're really spending, forces you to stick to a certain amount, and so much more. If you've not tried this system, you really should.