Why The Cash Envelope System Didn’t Work for Us
Now let me preface this by saying I am a huge fan of Dave Ramsey and I see the wisdom in all of his teachings. Now that said, I readily admit I don’t follow everything he says. One area in which I don’t follow along is with the cash envelope budget system.
I think the system is excellent. I do believe it “hurts” more to spend cash. It is hard for me to break a $20. I like that fact that when I spend cash I usually end up with change that becomes savings because I never spend change (I don’t know that Dave ever mentions that one, but it is a nice bonus).
My wife and I tried the cash envelope system. We gave up after only two months. Here are the reasons why:
- Inconvenience. Let’s face it, debit cards make life so much more convenient. It is not convenient to got to the bank or ATM once or twice a month to allocate cash in your envelopes. I hate waiting in line at the bank so I avoid it at all costs.
- Inconvenience. Yeah, same reason, but different. It is inconvenient to pay with cash. Grocery stores are not so bad really – unless you use the self-checkout, which I often do – again, because there is usually no lines there. Putting cash in those machines is downright painful. And really, who pays for gasoline with cash anymore?
- Location of the envelope. It’s happened on more than one occasion that my wife is making dinner and finds she is missing an ingredient. So what does she do? She calls me and asks that I pick it up on the way home from work. If I don’t have enough blow money in my wallet I reach for the debit card.
- Have you ever reached the checkout and when it is time to pay you realize you don’t have your wallet. That is really mortifying to me. I’m frantic in that case. I start looking through my car for a hidden $100 bill (it’s never there) or a blank check (never there either). Even if I only live 3 blocks away it is inconvenient and super embarrassing. If you forget your envelope and you don’t realize it before you get in line to checkout, are you really going to go home and get it? Not me, I’ll pull out the debit card again. Of course my intention is to go back to the bank and deposit the amount of cash I spent, but I don’t because that is so… inconvenient!
- While it “hurts” me to spend cash, it seems to have the opposite effect on my wife. If money talks, all it ever says to my wife is “goodbye”. I’m not being rude here. She readily admits this. It’s not more difficult for my dear wife to spend cash than it is to spend money in any other way. Basically, it is just more (there it is again) inconvenient.
Let’s face it. I love debit cards. What I like about them is that if you use your debit card as a debit card (as opposed to credit card) it withdraws the cash out of your account immediately. Your bank account balance is updated immediately (at least where I bank it is).
Here are some more things I love about my debit card:
- It is free to use. I have a free checking account. I don’t have to pay for new checks as long as I use my debit card.
- My bank let’s me customize it. I generally put pictures of my kids on it so people can tell me how cute they are. I sometimes wonder though if my bank would be opposed to me scanning in my drivers license so people don’t have to ask for it when I use my debit card in place of a credit card.
- It’s thin. With all that cash, your wallet can become a pain in the butt – literally.
- It doubles as a credit card. For those places that don’t accept debit cards but can take credit cards, my debit card works fine. I generally have to wait a day or two for the transaction to appear on my bank statement though.
- Did I mention it is convenient?
So, how do we make use of the timeless & effective envelope budget system with debit cards? We use Inzolo.
Whenever I get income, be it a paycheck or any other form of income, I decide where we are going to spend that money and allocate it to a virtual envelope.
Whenever we spend money using our debit card, the transaction imported lightning fast into Inzolo and I specify what envelope that money came out of. I can visually see all my envelope balances. If I go over in an envelope I can easily move the exact amount I need to cover the difference from another envelope.
It’s basically like haveing dozens of savings accounts set up in your bank and deciding where each transaction will come out of. I can even split transactions so that different portions come out of different envelopes.
So if you love the idea of the cash envelope system, but don’t feel you have the will power to stick to it, I urge you to give Inzolo a try.
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October 20, 2009
Tags: budget, budgeting, cash, envelope budget, envelope method Posted in: Family, Finance, Web Sites
33 Responses
I can’t imagine using the envelope system – how do you pay cash for utilities and other bills that come in? It just sounds so yahoo-ish, like the poor souls who make a cash payment at the buy-here-pay-here car dealerships. No thanks!
Jack, to be fair, the cash envelope system is only recommended for certain categories in which we tend to overspend, such as groceries, clothing, etc.
Hi Dustin,
Great post. It’s nice that i read this article because i was kinda planning to use this envelope system. Thanks for posting this, it gives me idea.
Regards,
Tom
Nice post here. Never tried of this system yet. I will try to find some testimonials.
yes Dustin, i think the cash envelope system is only recommended for small buying and not for big one, you indeed have to use Credit or Debit if you are going to buy some big items.
I love the idea of the “virtual envelope”. I have tried to use an actual envelope system similar to what you described, but found it was too easy to “borrow” from other envelopes when I needed/wanted to. THis seems like a great solution to that temptation!
I rarely touch cash and have not written a check in 5 years. A debit card is the best way to manage your money.
yes i do always keep one major credit card with me so that i can use when i really need it, i don’t use cards often, i just use them for some huge shopping and not for groceries.
I rarely use cash. But i doubt agree that a debit card is the best way to manage your money.
Like…. how can I allocate my money where I want it to go…. can the bank automatically do this…. I feel I’ll see better results if there’s a system the bank has, or someone has an idea besides the little envelope w/ pockets.
My wife and I tried the “cash envelope” you mentioned for one month. She is smarter than I am, and half my money was spent on things she asked me to pick up for her. Now she uses the cash envelope and I use the debit card.
My business is using cash envelope system for ordering of small web services designed specially for young people. I think it works with young people and for smaller purchases rather than for serious business environment.
Hey there, after having gone bankrupt once before, mainly because of badly handling credit cards, I’d agree that cash or debit card is the way to go. No more credit cards for me thank you.
It doesnt work for everyone. Keep it on the smaller side and all will be OK, but you have to keep it under control.
We did consider using the system, however there were couple of things I had to consider. My wife loves cash. If its there, its gone!!!
CC are much more convenient as you mentioned and I agree that using the system may only work in certain areas (food, etc), however when the wife loves cash, it makes no difference…the money is gone much faster then it would be through a debit card.
This is a great tool, or at least at first glance it seems to be. My husband and I have been doing Dave Ramsey for over a year now. However we still never do cash. We’ve tried the envelope system three times and failed. What we at least do is have a Walmart gift card that each week while grocery shopping we put 25 on it for gas. That’s about as far as we go at separating our money. I think we will try this Inzolo thing though.
I tend to use a hybrid system.. for everyday things like groceries and fuel (with a baby boy, I tend to find stops at the grocery store pretty frequent, because I have no brain left and regularly forget stuff) I take out a wad of cash for the week and just use that. When I get to the end of the cash, I start using up the odds and ends around the house and we get leftovers. The rest stays in the bank for all of the other stuff you have envelopes for.
Yea, we tried using the envelope system at my house too. It is an effective system if you can stick to it. Some months we did other months we didn’t. My husband is the spender in our home. The biggest problem we had with the system was the unexpected expenses that always seem to come up. We would end up dipping into the other envelopes to cover them.
Great post, you’ve certainly changed my mind. I had been planning on using the Envelope method
First of all thanks for sharing an awesome post, I love your way of comprising two different things as far as Envelop method or debit card method concern I preferred debit card because it is the best tool to manage your money.
gone are the days when people were using Cash Envelope System. The points raised by this author are helpful and beneficial as well.
I love the envelope system, my wife and I get paid weekly, so we are taking enough money out the ATM every pay period for gas and miscellaneous to take us until the following week and paying every bill we ever thought we had with whats left.
Apparently, the envelop system seems to be ineffective but as for as my opinion is concerned I will remark that it is good for saving not only the money but also the precious time.
This is cool. I’m dangerous with cash. I find I’m much more disciplined with debit card strangely. So a software tool like this could be really helpful. Thanks!
Thanks for sharing. Just like you, it hurts me if I have to spend cash, I tought I was the only one feeling it.
I wanted to use cash envelop system and Dustin your post was really very helpful for me.
Lucky for you guys, you live in an area and a country where the debit card is a generally accepted mode of payment. While the credit card is almost internationally accepted, the debit card is not. I would prefer this over a credit card anytime. You don’t have to pay for ridiculous charges. Where I am right now, cash (as in literally) is pretty much used for everything. Yeah it’s a bit backward. What I hate about using plastic, may it be credit or debit cards, is the fact that I can’t seem to picture the transfer of money. And when I don’t see any, I tend to overspend. But I guess it’s all about discipline and budget, eh?
I see a lot of posts mainly of people who do not like the envelope system saying it didn’t work because they run out of money or an “emergency” comes up and they have to dip into other envelopes so they end up chucking the whole idea. If this is the case, you’re missing the point and you are NOT budgeting. The idea behind the system is that when the money is gone for a particular envelope it is GONE. You have to shop sales, coupon clip or go without until you can replenish on payday. That’s what budgeting is. An emergency is something that is serious and happens once in a blue moon. If it is a true emergeny you should have no problem dipping into savings to cover it. If you are having “emergencies” every week. This is not an emergency, this is an expense and should be planned for with extra money allocated to that particular envelope or a new category. Your budget SHOULD be FLEXIBLE. It SHOULD NOT be set in stone. The point of a budget is to spend less than you make. Be realistic with your categories as long as you come in under budget. You may want that new Coach purse so you decide to put more money in your “fun money” envelope leaving you only $20 in grocery money. Knowing good and well need a minimum of $50 in groceries to survive. That’s not a problem with the envelope system. That’s setting an unrealistic budget. I’m not trying to scold (even though it may sound like it), I’m struggling like everyone else. But if you don’t practice the underlying principle of budgeting nothing will work whether you’re using the envelope system or not. Good luck to all!
I see a lot of posts mainly of people who do not like the envelope system saying it didn’t work because they run out of money or an “emergency” comes up and they have to dip into other envelopes, so they end up chucking the whole idea. If this is the case, you’re missing the point and you are NOT budgeting. The idea behind the system is that when the money is gone for a particular envelope it is GONE. You have to shop sales, coupon clip or go without until you can replenish on payday. That’s what budgeting is. An emergency is something that is serious and happens once in a blue moon. If it is a true emergeny you should have no problem dipping into savings to cover it. If you are having “emergencies” every week. This is not an emergency, this is an expense and should be planned for with extra money allocated to that particular envelope or a new category. Your budget SHOULD be FLEXIBLE. It SHOULD NOT be set in stone. The point of a budget is to spend less than you make. Be realistic with your categories as long as you come in under budget. You may want that new Coach purse so you decide to put more money in your “fun money” envelope leaving you only $20 in grocery money. Knowing good and well need a minimum of $50 in groceries to survive. That’s not a problem with the envelope system. That’s setting an unrealistic budget. I’m not trying to scold (even though it may sound like it), I’m struggling like everyone else. But if you don’t practice the underlying principle of budgeting nothing will work whether you’re using the envelope system or not. Good luck to all!
@Tami: I don’t know if you fully read the post. I said the CASH envelope system didn’t work for us. I still use the envelope system. I just use it in a virtual manner and make use of debit cards. I’ve been doing this for five years and it works great.
I read your post and all the comments. I was not commenting on any one person in particular, but I don’t know if you fully read MY post. It was more directed at the ones who feel the envelope system, in any form, doesn’t work. If you are using the envelope system, in whatever form, it wasn’t directed towards you. Especially since I do the same. I have six categories that I use cash, but for over 20 other categories I use a virtual envelope system that I track with an Excel spreadsheet which I created for myself.
Listen, any system is design to get you a different result than your pass result.(over spending) I’m so sick of people always talking about convenience, I’m looking for results! The envelope system, make you pay close attention to the budget, if you are in line at the grocery store and your budget is fixed at 100.00, and your total come up to 100.00, you can’t just add those pickles on the list. You are forced to stay inside of the budget.(no more money in the envelope) With a debit card, you would slide those pickles onto that receipt and you know it!!!!!!!!!!!!
Leon. If you are really that out of control that you can’t stick within the budget amount you have set, then yes, use the cash system and leave your debit card at home when you go grocery shopping.
When my budget is perfectly under control I feel entitled to some convenience.
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