I’ll admit, I think that the cash envelope budgeting system is a great way to get your spending under control, but it may not work for everyone. Even I had to let go of my cash envelopes during the early days of the pandemic when some stores temporarily discouraged using cash.
Enters the simple cashless budgeting method.
I had to find a way to keep my same budgeting principals–zero-based budget with every dollar accounted for–but use my debit card instead of cash.
And I found it.
Well, actually, I had to create one that worked for my needs by taking the best advice from several different budgeting methods. But what I ended up with is shear budgeting perfection!
When I say that I actually get excited about doing my budget each month, I really mean it! Budgeting can be fun (or at least less painful) when you have a system that’s simple and works!
What is the best budgeting method?
So you may be asking, what is the best budgeting method, and what is this magical budgeting method you created?
In my opinion, the best budgeting method is the one that works for you.
There are several different methods of managing your money which gives you choices based on your financial needs and your personal preferences. Here are a few methods I use now or have used in the past that I’ve found to work well:
Zero-based Budgeting Method
When people talk about the zero-based budgeting method, you often hear the phrase, “give every dollar a job.” This method assigns every dollar that comes into your bank account to some type of expense, savings, or investment that goes out.
In the end, your budget should look like this: income – expenses = zero.
Every dollar gets an assignment.
The Balanced Money Formula
This method is also called the 50-20-30 method. It stands for budgeting 50% of your total income to your daily needs, 20% to savings, and 30% on your wants. It’s a simple system and relatively easy to use.
Your needs would be things like mortgage, utilities, groceries, insurance, gas, and clothing–you know, those things you couldn’t live without.
Savings would include your emergency fund, retirement, and any debt repayment (though I wouldn’t really consider debt payments as “savings”).
And wants are pretty much everything else. Streaming services, cable TV, dining out, and vacations would fit in this category.
The 60% Solution
Very similar to the Balanced Money Formula, this method also works using percentages instead of set dollar amounts.
With this method, you take 60% of your income to use on what’s called “committed expenses.” This includes mortgage, basic food and clothing needs, car payments, insurance payments, and all other bills, including non-essential expenses like streaming services.
The remaining 40% is divided up into four categories of 10% each as follows:
- Retirement savings – 10% for your 401K, or Roth IRA.
- Long-term savings – 10% for your emergency fund or stock purchases.
- Short-term savings – this is money that can easily be transferred to your checking account and includes 10% for vacations, repairs, or irregular expenses. This is money you would spend within a year.
- Fun money – this last 10% is used to spend however you please on whatever you please–just stay within budget.
Cash Envelope Method
This method of budgeting has been getting a lot of press over the past few years. Dave Ramsey made it popular and showed us just how effective it is. I’ll share more about this method in the next section below, but basically, it involves using cash for some of your variable budget areas.
This is the old tried-and-true method of budgeting. It involves listing out all of your expenses and subtracting that total from your take-home, in-your-bank-account income. The remaining amount is what your have to “play” with. Whether it’s putting some aside for savings, investing, or for fun activities, you get to choose.
And if the figure is negative, then whoa, mama! You’re spending more on expenses than you make which means you need to either reduce/eliminate some expenses, or make some more money.
So once you do the calculation (income – expenses) and have the final amount, you can determine where you want to be financially and set some goals.
These are just a few of several different budgeting method. Do your research and find out what’s the best budgeting method for you.
What is the envelope method of budgeting?
So what is the envelope method of budgeting? Let’s talk about it more in depth here.
The envelope method of budgeting includes assigning every dollar a job and then allocating variable expenses to a category. Variable expenses might include:
- Eating out
Determine how much you will spend in each category based on your average spending over the past six months to a year. Assign an amount to each category.
As you are determining your various expenses, also look for areas you can reduce how much you spend. Do you find that you’re eating out a lot? Then find ways to cut back in this area. Or maybe you can begin planning your meals for the week and cooking more meals at home to reduce expenses.
Now that you have your categories and the amounts budgeted for each, label an envelope for each variable expense, like for groceries, gas, and entertainment. Pull out cash for each, and add it to the appropriate envelope. This is the amount you will be spending for the month for each expense category.
I learned a lot about the envelope method from Dave Ramsey and from The Budget Mom. Both offer great training on starting a zero-based budget with cash using envelopes. I even purchased this beautiful cash envelope budgeting workbook from The Budget Mom and absolutely loved it.
Does the envelope method work?
I used The Budget Mom’s Budget by Paycheck system for a year and had great success with it. Then when coronavirus hit and cash usage was low, I decided I needed a cashless system.
I still used parts of the envelope method, but adapted it to allow for payments via debit card for my envelope categories. I also made some changes to my envelope categories which I’ll discuss shortly.
So, does the envelope method work? Yes, it does! I would recommend it to anyone who has debt they need to pay off, has trouble with overspending, or doesn’t regularly balance their bank accounts.
How do I make a budget without cash?
Making a budget without cash isn’t much different than the envelope budgeting method. You start with allocating money to all of your fixed expenses first, then instead of withdrawing cash for the rest, you assign the money on paper–or on spending trackers–by spending category.
You can use the same categories as you would with the cash envelope budget system, but I found that didn’t work for me. There were too many categories to keep track of from one checking account, and it became too overwhelming for me.
So, how do you make a budget without cash? Well, I took the best of several budgeting methods and created my own simple cashless budgeting method.
Simple Cashless Budgeting Method
This method of budgeting combines parts of the zero-based method, the envelope method, and a variation of the Balanced Money formula into a very effective budgeting method. Here’s how you create a cashless budget:
1. Identify all of your expenses.
List out all of your monthly expenses, both fixed and variable–that includes things like mortgage or rent, utilities, grocery, gas, cell phone, etc. Determine how much you spend for each and add that amount to the list.
Also, estimate how much you pay for expenses that come around once or twice a year, like birthday gifts, car insurance, property taxes, or car maintenance and repairs.
2. List out your income sources and amount.
List each paycheck or income source separately in order of the timing it’s received. Include all sources of income, even irregular ones. With the cashless budgeting method, you will budget around each paycheck/income source as it’s received.
3. Determine how you will allocate your income.
This step is a variation of the Balanced Money Formula. With the Cashless Budgeting Method, here’s how I allocate my income:
- 75% is for spending on monthly expenses.
- 10% is allocated to other or future savings, like for health-related expenses. I allocate this amount for tithe.
- 7.5% is allocated to emergency savings. This is money you strive not to touch–unless in the case of a true emergency. You want to build up to 6 – 12 months of living expenses but continue past that amount.
- 7.5% is allocated to family savings. Your goal is to leave at least 3 months of living expenses in this category. Use this amount for pre-planned expenses, like car repairs, tires, vacations, holiday expenses, and other unexpected expenses.
The goal is to look for areas to save on expenses or to increase your income. As you do so, try to decrease your percentage for monthly expenses. Go down to 70%, then 65%, then 60%, and so forth. In this way, you build up your savings while reducing your expenses.
*Note: When you click the links in this post, I may receive a commission at no extra cost to you.
4. Assign every dollar a job.
Now that you have your spending percentages assigned, begin breaking out your income into the appropriate categories. Start with your list of expenses. Does the total fit within 75% of your income? If so, great job! You’re living within your means. If not, you will need to either reduce your expenses so you can afford to stay home, or find other ways to increase your income–maybe by finding work from home.
Within your 75% spending allowance, separate out your variable expenses, like groceries and other household expenses. These would be the “envelope expenses” you would have in the Envelope Method. However, as suggested in Jordan Page’s Budget Bootcamp, I condensed my expenses into two categories: Groceries and Other.
The Groceries category includes both food and household items, such as laundry detergent, dog food, over-the-counter meds, you know, anything consumable. I budget $100 per person per month for this amount–$300 a month for my family of three.
This means I have to plan my meals, cook more meals at home, and limit the number of times I go to the store in order to stay within budget. Right now, I go grocery shopping just once a week and it has helped me save $100 a month on groceries and eating out!
The Other category includes things like gifts, hair appointments, clothing, prescriptions, home decor, etc. These are things that you don’t get in a grocery store but are necessary for the family. I budget about another $100 per person per month, or $300 a month.
Now, that I know how much I have to spend each month, I split it up into weekly amounts since I’m only going to shop once a week. Here’s what my envelope looks like:
The rule is, when spending each week, you can borrow from the other category for that week, if needed. However, you can’t borrow from the next week.
For instance, let’s say Costco had some grocery items on sale that my family uses a lot. I decide to get an extra $50 worth of groceries, in addition to my usual $75 worth of groceries for the week. I would then borrow $50 from the “Other” category for that week, leaving just $25 in “Other” for those purchases.
So, if I wanted to get a $30 haircut that same week, I’m out of luck. I would have to wait until the next week to get it when I have another $75 in my “Other” category.
If there is a week where I spend less than my budgeted amount, I take that money and deposit it into my “Slush” fund. I’m rewarding myself for planning well and reducing my expenses.
You can learn more about how to set up your cashless budget, how to save big in groceries, and how you can get the cashless budgeting envelopes all in the Budget Bootcamp course.
Oh yeah, if you use my affiliate link, I’ll save you an extra 10% off the course!
5. Move the money to your bank accounts
Next, determine how much goes into each savings/spending category and then determine where you will store this money. I have separate bank accounts for all of my categories:
- Main family checking account. Deposit all sources of income here. I keep my 75% here to pay bills, and allocate 25% to the other categories from this bank account.
- Family savings account. I have a separate bank account that I transfer my 7.5% to each month. You may already have a savings account that you can use for this category.
If you need to open a new account for your family savings, look for banks or credit unions that offer to pay you to open an account. That’s a great boost for starting out.
- Emergency saving account. Since you won’t be touching this account often, it would be good to find a bank account that pays interest.
- Personal checking account. Because I want to be able to track two main categories of my budget–groceries and other–I separate this amount out in my personal checking account. (I know, I know…there are quite a few bank accounts going on here, but, trust me, it works. It keeps your money organized and used for its intended purpose).
I use this account when purchasing items in the Grocery and Other category and I put the receipts in my Cash-less envelope.
- Slush fund. This is where I deposit my spending money and any money I save each week on Groceries and Other. I’ll spend it on fun things, like a special outing, a purse I’ve been eyeing, or fun games for the kids.
There are other accounts you could set up, like one for a Health Saving Account for medical expenses. Or set up an investment account for long-term growth. You decide what works best for you and your family.
What is the best budget tracker?
For me, the Cashless Budgeting Method is the best budget tracker I’ve found. It’s simple and it encourages saving. You learn how to plan more and spend less in typically high-cost areas, like groceries.
Whichever budgeting method you try, give it at least 3 – 6 months to see if it works. Be consistent and stick to the “rules”. You’ll be amazed at how much you can save when you plan ahead and spend within your means.