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Finance Dee delves into the traditional wisdom of “Cash is KING” and shares her personal journey adopting the cash envelope system for budgeting, highlighting both its advantages and drawbacks.
A few months ago I felt a strong urge to tighten up my finances. I was in the middle of maternity leave, adjusting to motherhood, and my finances felt a bit more sloppy than usual.
Whether it was due to a lack of time, lack of energy, or lack of discipline remains unknown. But I wanted to move away from the feeling of tapping my card and not actually feeling like I was spending real money.
So I decided to try the cash envelope system. This consists of having a separate envelope for each budget category you have (e.g. groceries, transport, takeaways, miscellaneous spending, etc), allocating a specified amount of cash for each category, and then only spending the cash within each envelope.
I went online, bought myself a little cash envelope planner that was small enough to fit in my handbag, and started labelling them according to my needs.
What were my findings with switching to cash – and would I recommend it?
- Cash feels incredibly more real than seeing numbers on your phone screen. It made me almost feel rich in a way I never had felt before, even though I was dealing with the exact same money I usually do in my bank account. It felt like abundance, and that’s a feeling that I think is important for a positive money mindset.
- My spending was absolutely more controlled. I imagine that handing over physical cash sends a completely different signal in your brain than just tapping a card. It just hurts a little more, which makes you think a little longer on what you’re actually purchasing.
- The envelopes felt very final. I felt challenged to only stick to what was in the envelope. And when it was done, it was done. And that was what I really needed at the time.
- I am sure it is no surprise that not everywhere takes cash. From a vendor perspective, I actually understand why not transacting in cash can be a lot easier. But annoyingly, it meant having to pay with my card, and then depositing money back into my account from the relevant envelope.
- Walking around with cash can be a bit unnerving, especially when you’re not used to it. When you just use cards, if someone steals your bag and succeeds at using them, it’s quite easy to get that money back through your bank. But with cash –there’s no getting it back!
- Walking around with cash can get weight pretty quickly, especially when you’re getting your change in coins.
Overall, I think the cash envelope system is a fantastic tool to be more controlled with your spending. It without-a-doubt helped me get a firmer grip on my finances during a transitional period in my life.
There is something about dealing with cash that brings you back in touch with money and makes you remember it’s real! But on the flip side, there are undoubtedly some cons that make cards much more practical and cash much less convenient. And you have to decide whether you’re comfortable dealing with the inconveniences.
Ultimately, personal finance is truly personal and you have to find what works for you. But if what you’re currently doing is not working and you are looking for something to try help you along, it certainly may be worth a try.
Finance Dee is a British-Jamaican living in the SE of England. By day she's a research consultant and by night a finance YouTuber and FIRE blogger