The Modern Day Cash Envelope System

Have you heard of the cash envelope system? It's a popular savings strategy that helps control your spending. The idea is simple: you withdraw cash from your ATM and allocate a specific amount of money to different categories like groceries, dining out, entertainment, and more. It's an excellent method for first-time budgeters as it allows you to physically keep track of your cash. 

But, I have to be honest with you. As someone who has practiced this method with my spouse, I found it got old fast. Splitting the cash with your significant other for each category can become cumbersome. How much cash to allocate for each category? What if you can't get to the bank after receiving your paycheck to withdraw the cash? These issues can make this process not work and cause it to become abandoned shortly after starting. 

Moreover, the cash envelope system faces a significant challenge due to the decreasing trend of cash transactions. Many businesses are now moving to cashless transactions, making it increasingly challenging to use the cash envelope system to make payments. In 2022, cash transactions accounted for only 18% of all US payments, according to the Federal Reserve Bank of San Francisco. This decline in cash transactions is largely due to COVID, as businesses saw the efficiency of not using cash and the security concerns related to it. 

So, what should you replace the cash envelope system with? The answer is a debit card or prepaid card. They are similar, but a debit card is linked to your bank savings account, unlike a prepaid card. My spouse and I use these methods to fund and pay for our commonly incurred expenses like groceries and vehicle gas. We find this method much better as it is sustainable and can be automated. No more running to the bank after receiving your paycheck to withdraw cash! 

You can easily automate funding these cards by either requesting your employer to contribute a certain amount to the card each paycheck or setting up an automatic withdrawal from your checking account. When dealing with more significant amounts, like your groceries budget, I suggest going for the employer route. So, try this method out, and let me know how it works for you!  

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Are we living in a cashless society? | Stripe