I know I have mentioned this when I talked about budgeting. Please go here to read what I said about how cash will really works in your favor. You also know, if you read my ramblings how passionate I am about this system. This concept really is so old school, but it works! As you've read, I recommend using cash for everyday purchases. In my tip of the week I challenged you to use this system for 3 months. So let's talk about it.
There are certain categories in a budget that just make more sense to use cash for. These include but are not limited to: groceries, eating out, entertainment, clothing & blow money. The question often arises, how much do I put in the envelopes? The answer to that question depends on many things; family size, income level, and amount of debt you have. For groceries I would recommend somewhere in the range of 5-15% of your take home pay. This range applies mainly if you are not on the extreme low or high ends of the income spectrum. If you net $10,000/ year you need may more than $125/ month for groceries, especially if you have a family. Likewise, if you net $500,000/ year you wouldn't need to spend over $2000/ month on groceries. But for the average income in this country of $48,000/year this range works well.
Now let's talk about eating out/ entertainment. Did you know that in general there is an inverse relationship between one's consumption and one's net worth? That's right, the more you consume (spend), the less you have to save. What I tell my clients is to look at the overall picture. How much debt needs to be paid off? What do they want for the future? How badly do they want to get out of debt and change their lives? This category isn't a necessity to have. It's for fun and enjoyment. Yet some of us have been so lopsided by spending too much in this category that we've made a real mess of things. Going cold-turkey is not the answer either for most people, unless you are in very dire straits. Some entertainment isn't a bad thing, but you really have to decide what you are willing to sacrifice to achieve your goals.
While clothing is a basic need that should be covered, this doesn't mean you have to buy the most expensive brand name clothing at full retail price. Nor does it mean you must limit yourselves to buying only from the thrift store. If you have children they would obviously need clothing more often than adults, simply because they are still growing. For an amount in this category, I say, be reasonable in what your family needs, and shop for bargains. They are out there, both at the mall or the consignment store.
My last category that you may or may not use cash for is blow money. I personally don't use cash for this but many do. My husband and I have our own little checking accounts for this money. We typically use our blow money for things that we buy online for ourselves or just use our debit cards in a store. The important thing to remember is that the money is finite and isn't in your general checking account. As far as an amount, again it really depends on how much you really need to not feel completely out of gas. For some this might be $20/week, for others this might be $20/month. You really need to take into consideration your circumstances and personality. I personally take much less than my husband, because I'm a natural saver and I'm perfectly okay with this. As I've said before this money is to give you breathing room to do what you like in your budget. It's the grease that keeps thing moving. DO NOT, under any circumstances completely eliminate this category. Even if you only get a few dollars a week to buy a soda at work, you need this category.
As you go forward in figuring out what other categories you may need an envelope for, please remember to keep things simple. You wouldn't want to have 15 envelopes to keep track of, 3-5 categories usually will do the trick.
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