Budgeting using a Cash Envelope System

My Cash Envelope Budgeting Tools: my envelopes with the amounts written on,and the cash in them, my planner with the envelopes needed for the current day and the Cash Exchange pad so I can go to the bank prepared!

Last year wreaked havoc on my budget - I was not as conscious of sticking to my budget as I should have been, and was actually rather reckless :( This has left me with no savings, a credit card debt, a car debt, and now, the motivation to finally get cracking and sort myself out.

I'm a single mum, and my income is limited - it's time for me to accept that I can't do the things I used to and keep my spending at the level it was, when I had a partner providing the bulk of the income. Intellectually, I knew this, but putting it into practice was another issue altogether.

Around October/November last year, I did a lot of reading and kept coming back to the Cash Envelope Budgeting system. It just felt like it would work for me, and was something I had done in the past (with glass jars instead of envelopes LOL).

I went about creating my 2011 budget - it was going to be vastly different to 2010 for a number of reasons.

Once I worked out my budget, I worked out which payments were automatic deductions from my bank account, which payments were infrequent, which payments were budgeted for but hopefully not going to be used (ie medical expenses), and which items were regular everyday items.

I came up with a plan to leave the amounts for all automatic deductions, infrequent, and "hopefully not needed" expenses, in my bank account. And withdraw only the amount I need for those regular everyday items in cash. Any surplus between income and cash withdrawal or planned expenses is to stay in my bank account.

Then I set up an envelope for each of my Cash categories and wrote the category on the top with the amount to be added each fortnight. I decided to do this on paper envelopes to start with so I could note if I loaned cash to another category etc, whilst I am still fine-tuning the process.

The categories I have set for myself to use cash for are:

• Groceries
• Fuel
• Medications (regular meds - unexpected ones are in bank account)
• Gifts
• Hair/Clothing/Beauty
• School
• Household (lightbulbs, shoe racks - all those little bits and pieces)
• My Personal Cash Kitty

So now, each fortnightly pay day, I go to the bank, withdraw my cash amount and ask them to divvy it up into the correct change, then go home and fill my envelopes.

I've been doing this now for 3 pays, and I can see it being a fabulous system for me, but I have had a few issues settling in to it.

Firstly, setting this up so close to Christmas mean my gifts envelope was not even close to being able to cover the gifts I hadn't yet purchased. I'm quite sure by Christmas 2011, I will be fine though.

Secondly, School expenses are now exceeding the School envelopes contents. The girls start back on January 24th 2011, so book lists need to be bought, as do uniforms and new socks etc. Again, this is purely as a result of the timing I believe.

And thirdly, my personal cash kitty. This is for me to spend however I want. My cash amount per fortnight is $60, so $30 per week. Most of that can disappear in a single day if I catch up with a friend for coffee, buy the Saturday paper and have a takeaway meal, so I'm finding by week 2 of the fortnight, there is very little, if any, of this left.

I need to get tough with myself - I have already set a goal to not buy a single takeaway main meal for the month of January, so I can't wait to see how much longer my cash lasts without takeaway dinners. I'm also avoiding town, so therefore avoiding running into friends and having spontaneous coffees, and avoiding any little impulse buys.

Other than these 3 little issues, I can see this working really well for me! The amounts I've set myself for each category are just the bare minimum - but that's all I can afford. This is all about actually living within my means and trying to build a savings account that has $1000 in it by the end of the year - its not much, but that's all I can do.

Once I get more confident with the new system, I am planning on leaving my bank debit card at home (credit cards already stay home!) - but I do want a bit more practice first. I am already only taking the envelopes out with me that I actually need for that trip - this just makes it that bit harder to spend money unless its actually part of my daily plan.

I have to say, I quite like handing over cash to pay for things too! It feels very real, and I don't have any doubt as to whether or not I can afford it!

How do you budget? Do you use a cash system? Do you think it could work for you? Any tips or hints if you do use a cash system?