To ask if anyone does the ‘Cash envelope system’ to budget?

[StickThatInYourPipe]

Hi All

My partner and I finally went through our finances at the weekend and quite frankly they are shocking. We are always needing to use CC by end of month and now I can see why this is! We live completely beyond our means!

Has anyone tried the cash envelope system to budget? I have been seeing online some videos etc but was just wondering how people actually got on with them.

Thanks!

I got You Need A Budget in November (free year as I'm a student), it has been brilliant. I've always tried budgeting ahead and it doesn't work because we have variable income and it comes in randomly and weekly.
I've managed to save, put money aside monthly towards Christmas and birthdays, keep track of DH's spending (he has the app too and is now trained to enter every spend, he moaned at the start but he gets it now). Not only can we track where money goes, we can move it around (it is like a virtual envelope system) and it makes us more aware of what we have to cut back in order to buy something else. You only budget money you have, so if I get paid £50 I allocate it to a virtual pot or several. Each transaction takes money out of a certain pot (or split between several if I buy for example clothes in the supermarket).

DH and I have our own pots for personal spending, his mostly goes on alcohol (I don't really drink and was annoyed at his booze coming out of the food budget!) but he has since cut down drinking, partly because he can physically see what it costs. Mine goes on non essential clothes, swimming, coffee out or make up.

I bloody love it and use it daily, matching up transactions to my accounts to make sure what YNAB says is in my account is the truth. I love pay days as I get to allocate the funds.

Having loads of envelopes/pots with money is a bit antiquated. It worked when people were paid in cash or drew out their benefits/pensions in cash from the post office. But it's counter-intuitive to draw out loads of cash from a bank account, to put in envelopes/pots, etc.

You need a few separate bank accounts. Have a bank account where all wages/benefits gets paid into. Set up standing orders to pay regular sums into other accounts. Have a separate "spending money" account for each of you for your "luxuries" such as days out, Costa Coffees, pubs/meals, hobbies, etc - agree beforehand your budget and transfer the money - once it's gone, it's gone - it's a brilliant way to control your discretionary "me" spending. Set up monthly direct debits and standing orders for household costs, i.e. rates, power, telecoms, insurances etc to come out of your joint "wages/benefits income" account. Then set up savings accounts for things like holidays, longer term savings, contingencies etc - and again, set up a monthly standing order. So, a maximum of 4/5 bank accounts between you. A main one from which monies go in and "budget" monthly outgoings come out of - one each for personal spending, and 1/2 for long term savings. Simple.

And then our bank account has many small accounts within it, so Christmas/birthday, car, white goods, DIY etc

That sounds great. Which banks runs that a/c, Rufus ?

It would be really helpful for clients that struggle with budgetting. I've had clients that have opted to fork out £24.50 a month for Think Money accounts because they can't manage their bills etc, and that's a big chunk of income for people on benefits.

Years ago, several banks ran budget accounts, where you paid a certain amount into a second account every month and all direct debits for bills came out of that. It was really useful, but I've been unable to find a bank that does anything similar.

If you're any good with spreadsheets (we call DH Mr Spreadsheet), fill one in with all your set outgoings. It will show you exactly how much ready cash you have for the rest of the month. Then it is probably worth splitting the remainder into 4 and taking out the cash every Sunday night to get you through the week.
We also do like PP. 2 counts, transferring enough to cover mortgage, DDs, bills. Then the what we call the first account covers everything else.

Taught in schools??? This is how much money I have to live on this month. What is there to teach? Self discipline?

Well, as well as living month to month, there's planning for the future over different time-frames, setting goals, creating strategies to achieve those goals, understanding the effects of inflation and interest, the variety of financial products available and their suitability (or not) for achieving your goals, the psychology of marketing ploys to get you spending, how to spot them and avoid them, your attitude to risk, understanding your credit rating and what impacts upon it...I can think of plenty to teach students who are soon going to be managing their own money and trying to get established in life. If I'd understood more about money (my parents were careful types who didn't have much and lived month to month, but still did manage to save and get their own house - but are badly off for pension income) earlier in life, it would have saved a lot of time and poor decisions!

What do you do when your OH is rubbish at sticking to a budget? I have tried to budget before but then it all goes wrong when my DH gets a 'surprise' credit card bill for over £1000.

Cut his card up?

Mind you this thread has reminded me to check our joint account and I noticed that DP bought my Valentine's Day chocs and flowers on the joint a/c, the CF. We have our own a/c's for that sort of thing!

Frankly, the cash envelope system sounds a bit infantile.

Ooooh, judgey pants!

Some people find cash much easier to manage. It's immediately obvious how much you have left, for a start. You don't have to remember how much you've spent since you last checked your balance, contactless spending which doesn't show straight away or SOs/DDs that are due to come out before the next payment into your account.

It wouldn't work for me (cash burns a hole in my pocket in a way that a card doesn't), but I see nothing infantile about it. Quite the opposite, in fact, older people tend to prefer it. MIL does everything in cash and my aunt still uses cash for shopping (and writes everything down in cash book, which she balances weekly - her late husband was an auditor!).

I do it by online bank accounts - electronic version of enevelopes. I have a load of online accounts where my main bank account it and I split my money each month between them - they have cards. So ones for shopping, petrol, spending, household stuff etx

And credit card is in cupboard for emergencys so we physically have to lift it out to use it then put it back

Moneysavingexpert site is very good for setting up budgeting

I manage easier with cash. I set aside cash in jam jars for: xmas/birthdays, a holiday, summer hols from school, vets, a car, car insurance/service, emergencies, credit card and petty cash.

I save up every week and use cash for food and petrol.

It’s dead easy and it means I always have money available for the things I need.

I do nearly all spending on a credit card which I pay off in full each month. I get around £400 a year in reward cash.

It takes a few days for things to show up on the online balance though so I record everything I spend on a app to give me a completely up to date total of what I have left to spend.

I like that (unlike cash) I have a really accurate record of exactly where my money is going!

Thanks LadySainsbury I have a joint account and have had a joint mortgage with him. PearTree he doesn't run up £1000 in a short time, he just makes the minimum repayment because he can't afford to pay the full amount and it mounts up over time. It's ridiculous because we have an above average income, there's no reason to be constantly overdrawn or paying off huge credit card bills.

We have used the envelope system for years,we are fortunate now to not have a mortgage but regarding other bills hubby takes an amount every week from the bank and puts it in the relevant envelope elec/gas/phone/dog food/petrol/eating out/daily papers and pays the set amounts at the Post Office every week,he is set against standing orders after they overpaid a massive amount a few years ago.
We always have a surplus and can save a more than reasonable amount every month doing this,well worth a try.

It seems people have a range of methods for tracking their money whether it be envelopes, multiple accounts or spreadsheets etc.
What they all have in common though is a complete awareness for knowing how much money you have vs how much you're spending. Money troubles start when you put your head in the sand and try to avoid it until you suddenly are overdrawn/using CCs etc.

Confronting your finances head on is the best way to go, you should always know how much you have and how much you've spent. Check your balance every few days and make a note of the little things which add up - e.g. buying lunch everyday, coffee, treats etc. When you tot these all up you see just how much of your income they make up, and you can re-consider if you need them.

Also if available in your area 'Monzo' is quite good, it's a bank account with an app where every purchase you make flashes up on your phone (£5.60 in Tesco...£2.10 in New Look etc) - it means you're always aware of you're spending. You can also allocate amounts of money for categories - e.g. food, entertainment etc and it'll flash up when you're about to hit it (e.g. you've spent half your entertainment budget this month). Also any contactless payments are subtracted instantly rather than the few days standard banks take, so you always know exactly what you have. A few friends have found it useful for monitoring spend.

You're quite right, the key is awareness.

I've got quite a high income and a reasonably low mortgage so I was never in trouble with money at all but I was completely unaware of where it was going. Seeing where it goes is really empowering because you can make proper decisions. For example I had a magazine subscription that I wasn't really getting much from but couldn't really be arsed to cancel. With YNAB, it became much more "real" that there was £60 going out every 3 months that I could instead put in the eating out pot or the theatre tickets pot or even into the savings.

I appreciate some people do this in their heads anyway! I really don't, it needs to be written down!

It's a shame that some posters are being so judgemental, a cash based budgeting system is neither infantile or antiquated, how patronising.

If it works for people great, why should they move to a system that they aren't familiar with or may not work for them

Taught in schools??? This is how much money I have to live on this month. What is there to teach? Self discipline?

Well done alienspaceship, you've solved the world's debt problems, gold star to you for complete lack of understanding of how some people in poverty have to live

I do this but don't physically put cash in pots, I use an app called Fudget which keeps a tally of all my separate budgets (groceries, kids activities, weekend fun etc) and anything that comes out of my account goes straight on there. I've not gone overdrawn since starting it last summer so it def works!

Taught in schools??? This is how much money I have to live on this month. What is there to teach? Self discipline?

But long before that, you have the question of financing the essentials, such as a mortgage, car loan, etc. Can you afford to buy? How to buy? Comparing a bank loan against HP? Understanding how car personal leases work? Comparing different deals for power? There's sooooo much scope for making wrong decisions long before you get to the discretionary spending and control issues. Making better decisions from the outset would make a massive difference to most people.

I use loads of sub-accounts from our main joint account, which is essentially and online "envelope" system.
Main account - mortgage/bills get paid - grocery money left remaining
Savings account - I direct $X amount straight into savings (as a bill)
Savings account 2 - I direct $X amount for the kids savings
Sub account 1 - I direct $X amount for DH monthly spending
Sub account 2 - I direct $X amount for my monthly spending.

We have a high income and have never been in trouble financially, but I keep a very close eye on our accounts every day. I also prefer to track my own spending and pay cash for most things.

Which banks offer accounts with sub-accounts? That sounds much easier than having to open several different accounts.

I'm another one who uses electronic envelopes.
I have two current accounts.

One of them is my everyday spending account and covers travel, food, going out, basic toiletries etc.

I use the app to check how much I have left to spend at any given point in the month.

I used to put all my spending on a cash back credit card (which I would clear at the end of the month) but I wasn't disciplined enough and often spent more than I intended so I now forsake the cash back.
My Dad and sister still use his system though and get tonnes of cash back/airmiles repectively.

stunt

I think ours is Barclays

Rufus - how can you be using a budgeting bank account but now know which bank you're with?