Here’s a quick run down of the cash envelope Q&A that I’ve had to answer.

It’s no secret that I love offering budgeting tips.  I’ve been sharing quite a few lately.  I’ve noticed a buzz for my How to Use the Cash Envelope System.  I thought I would answer a few questions that I’ve come across.  If you haven’t read my earlier post, go ahead.  It’s pretty helpful if you’re thinking about switching to the envelope budgeting system, but not sure how to go about it.

Of course, your first step before doing anything is creating your budget.  If you haven’t done that then you should jump on over to How Create a Budget in 10 Minutes.  Budgeting doesn’t have to be hard or time consuming.  You just have to do it.  It helps you focus in on your financial goals as a family (or individual!) to stay on track.

Q: Do you have to pay everything with cash?

A: No.  Absolutely not.  If you can setup a bill to be auto-drafted then I would highly recommend it.  It makes your budget more streamline.  For J and I we have our phone bill, satellite, school loans, car insurance and gym membership all on auto-draft.  Those are usually the same amount each month, which makes adding them to our budget a breeze.  You might also be able to setup your utilities on a recurring payment, too.

TIP: If your bill fluctuates from month-to-month make sure you update your budget and check register.  It’s best to do update them as soon as you receive the statement.

We also purchase our dog food online because of the discount.  So I don’t pull cash out for the dogs anymore.  I just know how much I spend and how often I need to purchase.  That’s added to our budget and to our Google Sheets check register that I created.

You have to know what is best to be paid with cash.  A good rule of thumb is whenever your can easily go over your budget then you need to use cash.

A good example would be groceries.   It’s easy to keep adding to your cart without paying much attention.  Carrying cash will force you to stick to a budget.

Q: Do you always carry that much cash with you?

A: No.  The cash envelope system I purchased from Etsy is great.  It has a bigger snap wallet for all the envelopes to fit into, but each envelope is removable.  That way I can just pull the ones I want out and take with me.  It’s great when J and I are going to meet up with friends at a bar.  I don’t want to carry a lot of cash in case my purse gets taken.  I also don’t want the temptation to overspend.  So I simply grab out eating out envelope and stick it in my purse.

Q: What happens if you have money leftover at the end of the month?

A: There are several different options here.

First, you can roll the money over for the next month.  Think of it as a sort of savings account for that category.  You’ll have extra when you need it.

Second, you can pull out less money at the beginning of the next month.  Let’s say you have $40 leftover in your eating out fund.  You could simply withdraw $40 less from your bank that next month to make it fresh.  That way your keeping more money in your checking account.

Third, distribute the money into other envelopes.  This works if you  know of a bigger purchase coming up for another category.

Fourth, pull the money and deposit into your savings account.  It’ll help you reach your savings goal quicker.

It’s really up to you.  J and I do a mixture of these.  If I’m running short in one category then I’ll pull from my leftovers.  If I have quite a bit leftover then I will not withdraw that amount the next month.  The money that I didn’t need is transferred into our savings account.

Q: What happens if you need more money in a category?

A: You have to ‘borrow’ it from another category.  If I go over on eating out that month then I simply have to pull from another envelope.  I like to use the word ‘borrow’ because I do like to pay back what I take at the beginning of the next month, if possible.  If I go a little crazy at the grocery store to stock up on meat then I might have to borrow from our eating out fund.  But I know that next month I won’t need to buy so much at the store.  J and I could treat ourselves to an extra dinner out.

Q: Do you have to use a register for your cash?

A: Not if you don’t want.  Some people have great success with keeping a register to jot down where they spend their money and how much they are spending.  You can keep a simple register with each category or a master register with a grand total.

Or you can be like me and not use one.  I don’t really care where I spend my cash.  I budget to spend it and by using cash I’m thinking about each purchase.  So I don’t see the point.  Plus, it’s extra work for me.  I don’t want to keep up with an extra check register.  Especially if it’s handwritten!  I love my register for all other purchases on Google Sheets, but I’m not about to have a second one that I have to carry with me.

It’s all about keeping yourself accountable.

With using the cash envelope system you’re unable to spend as freely.  You have to think about your purchases.  Which is good.  You spend less if you think about everything.

Let’s talk about how to save for annual bills today.

Most of us, if not all of us, have specific bills that are not due each month.  There are specific bills that are due only once a year, every 6 months, or even every 3 months.  It can be a real hit to your budget or paying down debt if you’re not prepared.

There’s an easy trick to never be caught off guard by an irregular payment.

Take the full amount of the bill and divide by the number of months you have until it’s due.

Let’s take an example:

property taxes.  In most states they are due by December 31st each year.  Let’s say your property tax is $1,000.  It’s now January 1 so you have 12 months until it’s due again.  Take $1,000 and divide by 12 months.  You need to put back $83.34 each month into a savings account. By December you will have $1,000 saved.

No surprises.  You don’t have to cut into other areas of your budget or lessen your cash envelope amounts to make it work.

Unless you purchase or sell property throughout the year, the amount doesn’t change that much.

TIP: I always take the amount from the previous year and add 3% to it.  Sometimes I don’t add enough and others I add too much.  Either way the difference is less than $50 each time.

You need to do this trick with every annual or bi-annual bill.  Our trash bill is due every 3 months.  It’s only $35, which is not a budget breaker for us.  I still like to be prepared.  So every month I transfer $11.67 into our savings account.  When it’s due I simply transfer $35 to our checking account and pay the bill.  It doesn’t affect our budget at all.

Being prepared isn’t hard.  It takes a little bit of time each month, but if you’re updating your budget (like you should be) then it won’t add any more then you’re already spending.