In a time when contactless payments are the norm, our financial transactions often feel invisible. A tap of the phone, a quick swipe of a card, and the money vanishes from our account - almost unnoticed. This seamless convenience, however, can blur the lines of our financial reality.

Enter cash envelope budgeting: a method that brings back the tangibility of money management. It is a practical, hands-on approach that makes every pound spent a conscious decision. You can physically see and feel how much money you have left for the month instead of working with numbers on a screen.

In this blog post, we explore how this approach could transform your money management.

What is the cash envelope system?

At its core, the cash envelope system is simple. You take your monthly income and divide it into different spending categories. Each category gets its own cash envelope. For example, you might have groceries, entertainment and debt repayment envelopes. Once you have divided all the money, that is it – you only spend from these cash envelopes. If the "eating out" envelope is empty, it is homemade dinners until the next payday.

There is something about physically handling your money that makes a difference. By assigning actual bills to each envelope, you are not just budgeting; you are making a tangible commitment to your spending limits. It is a stark contrast to mindlessly swiping a card and then being shocked by the bank account balance later.

Changing your spending habits

One of the biggest perks of envelope budgeting is its impact on your spending habits. When you can see and feel the money leaving your envelope, it becomes more than a number. It is real and it is finite. This awareness can lead to more thoughtful spending decisions and help curb impulse buys.

You can adjust the spending categories and amounts as needed. Fixed expenses like rent and utilities can remain in your bank account, while variable expenses like groceries and entertainment get their cash envelopes.

Just remember to keep a little money in your bank account in case a restaurant or cafe doesn't accept cash. Of course, this slightly defeats the point of the cash envelope system, but it is always good to be prepared.

A step-by-step guide to cash stuffing

Ready to start cash stuffing? Here is a quick guide:

  1. Determine your spending categories: Start with broad categories and refine them as you understand your spending habits better.
  2. Allocate funds to each envelope: Decide how much goes into each envelope based on your monthly income. Be realistic but disciplined.
  3. Only spend what's in the envelopes: Once an envelope is empty, that is it for the month in that category.
  4. Adjust as necessary: Life changes and so should your envelopes. Review and adjust monthly.

While you are using cash for daily expenses, your bank account is not obsolete. It is still there for fixed expenses and savings. Think of your bank account as the backbone of your financial structure, with cash envelopes as the flexible limbs. The envelope budgeting method removes the temptation and ease of contactless spending, so you have to think more about each purchase.

Try the cash envelope method

If you struggle to stick to your current budget and find yourself going overdrawn, give the envelope system a go. Put your contactless cards away for one month and see if you can shift your spending habits.