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Pros and Cons of the Cash envelope budget method

Pros and Cons of the Cash envelope budget method, with MoneyBites
Putting cash envelopes to the test.

Money Bite-Size Read:

  • Many of us turn to budgets as a tool to help save money.
  • Using a cash budget can help you to stop impulse spending.
  • Here’s the pros and cons of the cash envelope budget method to help save money by budgeting with cash.

The MoneyBites Take:

If you want to save money, the cash envelope budget method of using physical cash to pay for things might be right for you.

 

Do you need to start saving money?

It could be saving money up for a home deposit or an emergency fund. We’re not great at estimating our spending each month, so a budget can help you monitor this spending to save money. It’s vital that you find the right budget method that will work for you long-term.

That’s where the cash envelope budget can be useful.

This cash-based budget uses cash to pay for your everyday expenses. You take cash out of the bank, divide it among categories like groceries and transport costs and put money for each category in different envelopes.

It’s an old-school and visual way of budgeting compared to the 50-30-20 budget or budgeting apps. So, is the cash envelope budget right for you?

 

Here’s the pros and cons of the cash envelope budget method:

 

PRO stops your overspending

The biggest benefit of the cash envelope is once the cash is gone, it’s gone without the option to overspend.

 

CON cash is less secure

A major downside of the cash envelope system is it lacks security as if you lose your cash, it’s harder to recover.

 

PRO easy to work with

This is not a complicated budgeting system as we have used cash before, and we know how to spend it.

 

CON not suitable for modern life

We pay more bills like rent online now, so this budgeting method is only for general expenses.

 

PRO starts with your income

You withdraw some of your salary from the bank and start budgeting with that income rather than using money you don’t have.

 

CON cash doesn’t earn interest

An online savings account can earn interest, but you miss out on this by just using cash.

 

PRO makes money tangible

Cash envelope budgeting makes spending a physical act because you pull money out of each envelope to spend it.

 

CON it’s tempting to move money between envelopes

To succeed with this budget, you must avoid the temptation to move money between envelopes to cover your costs.

 

PRO great for building spending habits

When you see cash leaving your wallet right in front of your eyes, you’re more likely to resist parting with your cash on impulse.

 

CON you need to keep getting cash out of the bank

We typically get paid online, so you’ll need to go to a bank and continually take money out each time to fill up your envelopes.

The cash envelope budget can help you save money.

Making spending a physical act makes it more real, and you become more conscious of spending money. Going back to cash could be a great way to help you develop a strong savings habit and feel more in control of your money.

Written by Kate Crowhurst

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