Money Miracle – Change Your Finances With an Envelope, a Sharpie and a Can-Do Attitude Skip to main content
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Money Miracle – Change Your Finances With an Envelope, a Sharpie and a Can-Do Attitude

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Envelope of cash

One small envelope (or two) could change your finances!

Finances can be confusing. Most kids don't graduate high school with enough money savvy to serve them well and plenty of college graduates don't have a much better idea about how to deal with their finances. Even as an adult, money matters can be confusing and are made worse when there's not enough money to go around and you're trying to balance what to pay and what can wait. And, as we wrote recently, even those making big bucks may not know how to spend and save to keep themselves out of a money mess.

The good news is that you can change your financial habits and get some money sense with just an envelope (or a couple of envelopes). Here's how.

Budget first for critical bills – not in an envelope

The first item to be concerned with are your bills. You've got your rent or mortgage expense, utilities, insurance and cell bill. These are bills that are set in stone and that you should set up on auto-debit to lock in the payment so you don't put necessities at risk. This money doesn't need to go in an envelope unless you pay it in cash. Setting up on auto-pay prevents you from racking up late fees that can rapidly add up. But just because you're on auto-pay doesn't mean you should be on auto pilot. Still be sure to check your bills carefully each month to check for errors and over-billing.

Budget next for cash expenses – these go in the envelope

You actually need a couple of envelopes for this part. This is where you stash your cash expenses by category. Set up envelope for gas for your car, another for groceries, one for clothes, entertainment and eating out. You can shake this up depending on what you do. You may want one for toys for the kids, lunch at work, whatever you spend cash on. Divvy up your money into these envelopes based on what you think you should be spending (i.e. your budget) and label clearly with your Sharpie. Once you empty the envelope, that's it, don't let yourself spend any more. This puts an end to overspending. A good idea is to get receipts when you spend the cash so that once your money is all gone, you can sift through the receipts and see exactly where it went so you can make better and more-informed decisions next month.

Set financial goals – these also go in envelopes

If you're contributing to a 401(k), that's great. On top of this, saving towards other goals can drastically change your spending habits for the better. If you want to take a beach vacation or a trip to Disney, figure out what this will cost and write that amount on an envelope and even sketch a photo or attach a fun sticker. Do this for a down payment on a home, a new car, a new set of living room furniture or other big purchase item or goal. Don't buy it until you have the cash (with the exception of the home or car but wait til you've got a sizable down payment for these). This keeps you out of debt spending. You may also want to set aside an envelope for emergencies like car or home repairs and build up to $500-$1,000 as an extra buffer to protect your budget. If your home downpayment envelope gets full, put the cash into a CD that locks it down for six months to a year so you can't access it then start re-stuffing your envelope!

Envelopes only – no credit card use for cash expenses or larger purchases

The key to this system is that it teaches you to control your cash spending. The envelopes act both as categorized wallets and, for your goal items, are a visual reminder of what's important to you. If you have left over money in your cash envelopes at the end of the month, you can divvy that up between your goal envelopes. Looking at your vacation envelope and how much you have to go to get to that goal, you may be less likely to indulge in Starbucks or a spendy sweater when you know that money could be going toward your goal. This makes your goals very concrete and specific and not just ideas in your mind of “one day, I'll...”

Keys to success – no ATM, debit card and credit cards

The key to making your envelope system work is to stick with it. Don't cave in and get cash back with your debit card or hit the ATM to replenish. When it's gone, it's done. Also, don't flash the plastic. If you can't afford it, you can't afford it. It will likely take a couple of months to perfect the system but don't give up. Even if you lose control mid-month, that's okay, just reset next month and try again. This is a perfect system for people that need visual cues to help them stick to goals and for those that ask themselves at month's end "where did all my money go?". If you're not sure where you're spending your money and keep running out before the next payday, try this system and see if it helps you learn about your spending and get more control.

If your money is too tight and you've got far too many bills to pay than you can afford, a well-timed North Carolina bankruptcy may be the better solution to get you the financial fresh start you need. Contact the law offices of John T Orcutt for a free consultation at one of our convenient NC locations.

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