On Tuesday I talked about a very tangible outcome of switching to using cash instead of debit cards. Now I want to talk about how I actually set up the system of cash envelopes. I had wanted to switch to a cash budget system for quite a while. While we were saving $20K last year our budget system consisted of, “put $1700 or more a month in savings and spend the rest on whatever we need/really want”. It was a savings budget, not a real way of managing our money. It was a small practice step for us. Living on one income made it necessary for us to have an actual, legitimate budget to make our money go as far as it can.
The task of moving our spending from easily swiped debit cards to cash was daunting in theory but much easier in practice. I thought about it for months and read about it and researched it – but in the end the only thing I could do was try. It was complicated at first. It involved setting up a new bank account as our primary bank is USAA and they don’t have local branches. (As a side note we absolutely love USAA, they have the best customer service I’ve ever experienced.) We couldn’t take the money for the cash system out of an ATM because we needed it in exact denominations. It didn’t make sense to take the money out of the ATM and then go to a local bank and try to change the bills into something else. So we had to open a local checking account. I spent a lot of time trying to figure out how to get around this step so if you already bank locally you are way ahead of where I started!
I figure out the amount of cash we will need for the month prior to the month starting. I get paid weekly and by figuring it out before the month starts we are always planning ahead, not just keeping up. So the last two pay periods of a month are really going to pay for the first half of the next month, and the first two pay periods are going to pay for the second half of the month. In months where I get 5 checks instead of 4 we’ll use that extra money towards our house payment. So once I know how much cash we need for a month I divide that number by 4 and that’s the amount of my direct deposit into the local bank. When I figure out how much cash we need for a month I also figure out what denomination of bills we will need. Then the 1st and 15th of the month I go to the local bank and clean out the account. The local bank is basically acting like a revolving account. It is a little weird to go to the bank and say, “I need to withdraw everything in my account and I want it in these denominations”. Then I hand them a little piece of paper that looks like this.
I think it is easier to give them the piece of paper instead of reading it all out to them. Yes I do feel like a crazy person asking for this weird amount of money divided out this specific way; but I figure if it helps us pay off our house and makes our lives better I can put up with bank teller thinking I’m a wack-a-doo. Then I take all the money home and put it into separate envelopes labeled for their specific purpose. We keep it in a little plastic file folder so when we go to the store or something we can just grab it out of there.
The fear of it being overwhelming complicated was way worse than it is in reality. It is something that you just have to get in there and do for yourself; and it won’t be pretty the first time but your confidence will grow and soon it’ll be a piece of cake.
On Tuesday I’ll go over the categories of our budget and how we decide the amounts for each category.