When trying to figure out a budgeting method that you want to use, a lot of people stumble upon Dave Ramsey’s Cash Envelope Method. Don’t know what the envelope method of budgeting is? Just google it and you will get thousands of resources explaining it to you.
What is the Cash Envelope Method?
In essence, the principal is to use only cash, no credit cards, so that it is harder for you to spend and when the cash is gone, you’re out of money until the next month. It is a very visual and tangible way of budgeting.
Why I Don’t Like the Cash Envelope Method
But, I don’t like this method for many reasons.
- LOSS OF CREDIT CARD REWARDS
The main reason I don’t like this method and why it took me so long to try in the first place is because of credit card rewards. I am a traveler, and my credit cards earn travel points. In my eyes, it is basically like free money.
Yes, I get that using a credit card will not work for everyone, but I use my credit cards like a debit card and am very careful with it. I never spend more than I physically have in the bank, and I make sure to payoff the entire balance at the end of each month. If you are not disciplined in this regard, then maybe indeed the cash envelope system is the best idea for you.
2. CASH GETS LOST AND STOLEN
I don’t know about you, but somehow I either lose money by leaving my wallet somewhere, or my wallet gets stolen while at the grocery store (or something crazy like that) almost every single time I carry cash. I stopped carrying cash for this reason back in college, and when we tried out the envelope method I had so much anxiety about losing the money because basically all of our money for the month was in those envelopes.
3. YOU CAN’T FORGET THE ENVELOPES AT HOME
As a busy, working, mother, I never quite know when I am going to be able to run a particular errand. Sometimes I would go to do something and I wouldn’t have the cash envelope with me – frustrating! I didn’t want to always carry them with me either because of the fear of losing all the money, so forgetting them at home and wasting my time was definitely a con to this program.
4. MAKING AN EXTRA TRIP TO THE BANK/ATM
When I use cards, I literally never have to go to the bank unless I am depositing cash that someone has given me. Pretty much everything else that I need can be done online or from my mobile app. So giving myself the extra task of going to the bank to take out cash is inconvenient for me. Yes, you can take money out at an ATM, but with the envelope method you need certain denominations of bills, and you can’t always get exact bills from an ATM.
5. DIFFICULT TO SHARE WITH YOUR FAMILY
When you have a family that also uses a particular category, it is really hard make sure that you have the envelope when you need it. For example, I ask my husband to pick up some milk or something on the way home from work, he can’t. If my husband goes for coffee in the morning and I want to get some later, I don’t have the envelope to do so. I guess theoretically you could make envelopes for each person, but then figuring out how to divide the already divided money becomes difficult.
6. HARD TO SPLIT UP TRANSACTIONS FROM MULTIPLE CATEGORIES
If you like to shop at Target like me (or any store that sells multiple categories of items), pulling money from each item, or paying with money from one envelope and splitting the money later becomes very cumbersome. I much prefer to charge it, get my points, and look at the receipt to write down how much was spent from each category.
7. NOT GOOD AT TRACKING IMMEDIATELY
When my husband and I tried out the cash envelope method, we realized that we were not good at tracking that way. A lot of places we shop don’t give reciepts, so unless you pull out your pen immediately to write down your expense, it’s very hard to remember what the exact figure is. With credit cards, you can just pull up your account the next day to see your transactions. Yes… you could always write it down in your phone or something until you can get back to your envelope, but I usually have a child in each arm at the coffee shop and it would be a hassle and just one extra thing to try to do when juggling everything else.
Also, My husband wouldn’t write down his purchases at all figuring that you just stopped spending when the money was gone. So, not knowing where the money went and who it was spend by is annoying. If you are single, maybe it doesn’t matter so much, but I find just looking at my credit card transactions to be so much easier and flexible.
8. WASTED LOOSE CHANGE
I found when using the method that loose change just sat in the bottom of the envelope for the most part and never got used, OR it went into someone’s pocket, the door of the car, or lost in the couch. Either way, I felt that we were just wasting a little bit of the money we set aside each month. Now, if you were to put all that change into savings then it could be a good thing (kind of like Acorns), but I found that we were not doing that.
What I Do Instead of Cash Envelopes
Instead of using cash envelopes, I keep all of my money in my bank account and use credit cards. Then, I make sure that the balance is paid off each month. It’s basically like I’m using a debit card. Everyday, I go into my online account, and track my spending in my budgeting spreadsheet (available for you FREE here). That spreadsheet is stored in a place where both my husband and I can access so that we both always know how much of a category we have spent. Updating it frequently is imperative to success when using this method.
The key is to NOT spend more than what we have budgeted. If you do that then you really are not budgeting. It requires more discipline, but it’s the same principle, and when you’ve used your budgeted amount for the month, there is no more money to spend.
With this mindset, we have been very successful in our budgeting endeavor, and get to keep racking up our travel points at the same time too.
What do you think?