The Cash Envelope budgeting system - has social distancing killed this off?

 The Cash Envelope system of budgeting is where you put aside cash in separate places for separate categories in your budget.  It used to be how I budgeted far too many decades ago since the expansion of YouTube if you search for a budgeting technique it is probably the one which will pop up.  First define your categories

For Example:

Food

Travel Expenses (petrol/bus fare etc)

Clothes

etc.

Then have a separate amount in cash (worked out in advance) for each of these categories from one pay day to the next.  It is almost impossible to overspend as even if you cheat and take the cash from another envelope you are limited to the total amount in folding stuff you have withdrawn.  At the end of the pay period you can either put any left over money into a savings account or just withdraw the balance to take you up to the starting amount in each envelope and leave the rest in your account.  This was easy when I lived in town and it was only a short walk to the bank but became something that was more difficult when I moved to a village with no bank and when I stopped using this system.   It does however remain the number one method that most people rely on probably because it works because no-one wants the embarrassment of standing at the head of a checkout queue and having to put some of the shopping back because you do not have enough cash.

This year when COVID-19 struck cash became a dirty word in most shops, we were told payment should be contactless where possible.  Not that this was not a trend already but it has accelerated with not wanting to touch a physical object that has been touched by someone else without it being wiped down!  The cash envelope system worked because it is physically impossible to overspend - the amount of cash you have in your hand is the amount you have, no creeping over by a few pence/pounds here and there, so can we still do this?

Well in theory yes.  There is no limit legally to the number of current accounts you hold and (again in theory) you could set up one for each of your envelopes.  If these have no fees and no overdraft either it would work in the same way as an envelope per category- except of course you need to keep a running total as you no longer have the physical evidence of how much you have spent or saved in  front of you.  But I bet no-one really wants 6/7 current accounts, I mean how would you tell which card was which?

Some bank accounts also let you allocate different budgets for different things from the same account so you can see if you went over or under but again this is in retrospective. 

The easiest way would seem to be to use your smartphone assuming that you have one to keep track of spending with any one of the myriad of apps that are available for free.  Bear in mind though that this is also retrospective and you need willpower since you are not prevented from overspending in the first place. 

So having worked out our budget how do we stick to it?

1. Shop around online.  Most companies now have an online presence and you can work out the cheapest way of buying everything from the new smart phone to your weekly shopping.

2. Is it a need or a want? Have a list of essentials that you are getting (regardless of whether it is this weeks food or the kids school shoes).  Then have an amount of money that you can spend on "extras"  for each category if and only if you need them and you know you cannot get them cheaper anywhere else.  This way you will not feel that you cannot take advantage of an offer that drops into your lap without blowing the budget.

3. If you are not sure your "extra" is cheaper elsewhere then do some research.  Either look it up on your phone then and there or wait until you get home, this has the bonus that you have extra time to think about it and cancel that impulse buy.  Looking it up then and there has had a bonus effect from time to time, when you tell the shop assistant who is trying to serve you that you are looking to see if it is cheaper elsewhere you can often get a price match or better deal (at the managers discretion) of course without the adding expense/hassle of travelling to the other shop.

4. Keep a tally.  Yes it is boring and yes I often forget for days at a time since my life is so hectic but if you don't know where you are how can you tell if you are getting anywhere?  Remember the challenge is not to spend the whole allowance, not to see how much you can shoehorn into it.  Thinking I'm only a few quid over I'll make it up next month very very rarely works no matter how good your intentions are; largely because either you forget, or prices have gone up again.

5. If in doubt, wait.  Giving yourself 24 hours to think about whether or not to spend the money will stop you from any impulses (hopefully) and who knows if you talk to your mates about it they may have a spare whatever it is for you to borrow and find out if you really need.  Thinking about things in terms of how many weeks food that would buy or some other relatable amount helps me to realise the value of what I am about to spend.

5. All work and no play... Remember if all you ever do is save, save, save it can feel that you are ground down on a daily basis.  Add something into your budget that is just for you but an appropriate amount.  So maybe a bottle of wine once a month rather than a meal out.

6. If you do fall off the wagon it is very rarely the end of the world.  You are unlikely to lose the roof over your head over one overspend but if you then think "I've blown it anyway" and throw everything away then you are more likely to put yourself in a difficult situation.  The important thing is to quickly realise that you have gone over, not to beat yourself up about it but put it down as a bad day and work out how to recover - even if that has to wait until next payday.

7. Have a reason to save.  It could be something seemingly unachievable like a house deposit or something small like a weekend away.  Make it something that you can visualise and then have a running total of how close you are.  A friend of mine who wanted a new kitchen had a plan on the fridge and coloured in each cupboard as she thought she could afford it.  Having a purpose will make it easier to turn it into a challenge rather than a chore.

8.When it all gets to much take one day at a time.  I know I can always get through today.  Tomorrow will come by itself anyway.

Stay safe and well.