Feb 202015

This week I read a quote from a Greek philosopher, Thucydides,

“The secret of happiness is freedom, and the secret of freedom, courage.”

I think this should be the maxim of the self-employed, because it takes a lot of courage to start a business, but the payoff is the freedom to be in control of your own time, and to choose how you will spend it.

Last year was a very difficult year for us. A lot of things happened (most of which I did not discuss here), so I’ll just say that 2014 included serious health problems, financial stress, issues with people who either don’t know how much damage they inflicted (yeah, right), or they don’t care, marriage tension, and a lot of counseling.

This is why we changed our life – because the status quo was killing us. My husband’s work was destroying his physical health (the man is simply not built to sit at a desk all day. No one is) and emotional stress was eating him alive. Certain relationships were making him miserable, and he needed to see a counselor in order to understand that he is important too, and he shouldn’t allow people to kick him around. Because we’re so close, his misery was my misery; it affected every aspect of our lives together. I was upset with him because I had told him for years that he needed to find a new career, stand up to people, etc., and he was upset with me because all of my “I told you so-ing” was not at all helpful. Something needed to change….and so we changed it. We’re no strangers to change.

Unfortunately, one of the side effects of 2014 is that we spent too much. People suffering from stress, anxiety, and depression often do. I still managed to save money every month, but when I sat down to do our year-end financials for taxes I was disappointed, particularly in how much we spent on food. I have long used the USDA “Cost of Food at Home” chart to determine what is a reasonable food budget amount for a family like ours. While this chart does not include restaurant meals, I have always included them in my record keeping because I feel that this is the only way to get a truly accurate picture of how much we actually spend on food. So for my purposes, I always try to keep our total food expenditures – at home and in restaurants – at the thrifty level.

cost of food

Last year, our food expenditures crept up to between the low cost and moderate levels, and I blame credit cards. Studies repeatedly show that people spend more when they pay with a credit card, versus when they pay with cash, because a credit card isn’t really money. I guess if you’re independently wealthy, with an endless supply of cash sitting around, this is no big deal. However, if you’re a typical middle-income family, this is the road to debtor’s prison, and the reason why so many people in America are buried in credit card debt (an average of 16 GRAND in 2012 *gulp*). A Dun & Bradstreet study found that people spend 12-18% more, on average, when paying with a credit card. The reason? Because it hurts more to hand over cash for a purchase. Cash is real and tangible, whereas with a credit card you don’t even see the impact of your purchasing habits until your statement comes…a month later.

This is what was happening to us, and I didn’t like it. We had lost sight of how much we were actually spending, so I’d be going along, feeling like we were doing pretty good! Then our Visa statement would arrive, and I’d be shocked and upset by how much it was. We’d always paid for everything with our credit cards (we paid our balances in full every month) because we could earn cash back, but I’m here to tell you – an extra 25 bucks is not worth it if you have to spend $2500 to get it!

So, because my husband has delegated the management of our finances to me, I took control. Last fall the personal credit use stopped. We have two credit cards- one for business, and one for personal use – and I took the personal credit cards out of our wallets and put them in the safe. The only time they can be used is when we have to buy something online, for consumer protection purposes. I paid our balance in full, and we went to cash only. I even switched the bills I pay online (electricity, cell phones, and internet service) to debit, instead of credit. This way I have a much more accurate picture of where we’re at financially, and it has made a huge difference.

This month, in an effort to be even more organized and in control of our budget, I made the Budget Box.


This is just a photo storage box that I already had, with four labeled 6×9 envelopes inside – one for each household budget category (business expenses are kept separate, for tax purposes). I chose only these 4 categories for cash because they’re the expenses we have the most control over, and the areas in which we’re most likely to overspend.

My categories are:

Food – $750/month (based on the USDA thrifty level for our family size/composition)
What this includes:
All food items, including groceries, snacks, sodas, gum, candy
All restaurant meals, including tax and tip

Housekeeping supplies – $75/month
What this includes:
Laundry soap, paper towels, napkins, cleaning products, postage, lawn and garden supplies

Personal care – $75/month
What this includes:
Toilet paper, soap, shampoo, shaving supplies, toothpaste, floss, lip balm, cosmetics, nail care supplies, feminine hygiene products, vitamins, OTC pain relievers/medications

Miscellaneous expenses – $300
What this includes:
Clothing, shoes, school supplies, party supplies, gifts, other miscellaneous expenses

I had always based our yearly household budget figures on the previous year’s expenditures, but this year I decided that I needed to rethink this. After all, I personally felt that we were spending too much. Would I take budget advice from someone if I believed them to be a spendthrift? No. (Not that I’m a spendthrift – far from it – but you get my point). I needed a fresh start, but how do you figure out what is a reasonable amount to spend on, say, household products?

I did some research and learned that the IRS has established national standards for five necessary expenses: food, housekeeping supplies, apparel and services, personal care products and services, and miscellaneous. The standards are derived from the Bureau of Labor Statistics Consumer Expenditure Survey, and are used in calculating an affordable repayment structure for delinquent taxes. I used those figures as a jumping off point for creating my categories and budget amounts (because we spend so little on clothing, I lumped it in with the miscellaneous category).

nat stand

Like any new system, this takes some getting used to. I fill the envelopes with cash at the beginning of the month. When we need to buy something in any of these categories, we take cash out of the box, and put the change and receipt in the box when we get home. This month, being the first, we sometimes forgot to take cash and used our debit card instead. This is to be expected, at first, but it’s easy to remedy. When I reconciled the envelopes, I totaled up all the debit receipts, and repaid that amount from the envelopes back to our checking account with my bi-monthly bank deposit. If we have a credit card expenditure in one of these categories (only one so far this month, for vitamins), I pay that back to the account also, so the money is there to cover the bill when the statement comes. I use a program called receipt splitter, to break out our expenses because receipts often have expenditures in more than one category.

Budget Box
This is helpful because food is not taxable in our state, so I can specify our tax rate (7%), and designate the grocery category as non-taxable, so the sales tax gets allocated properly.

I decided that I would only reconcile the envelopes twice a month – once in the middle, and once at the end – and when I’m done I file all the receipts so I know they’ve been reconciled. This system is really not that much work at all. I actually find it to be far less work than sorting a mountain of credit card receipts, matching them up to the statements, then breaking them all out into categories for taxes!

The best part? There are only 8 more days of the month left, and our expenditures are as follows:

Food – $316 (Only $105/week, and over $400 of our budget remains)
Housekeeping supplies – $5.31
Personal care – $71.62 ($54 was vitamins and Epicor, which I credit for the fact that none of my kids have had a single cold all winter).
Miscellaneous – $66.25 (only 22% of the budgeted amount)

I’m so HAPPY about this. I think it’s awesome to have regained real control of our money….and no more giant credit card bill shock every month!


  19 Responses to “Our Cash Envelope Budgeting System”

  1. Thank you for this! We are going back to a cash system. And you are so right, the points just are not worth it! Can you share the receipt splitter website you use? I’ve searched for a few and really don’t want to download a dud 🙂

  2. There is a great show we have here in Canada called “Till Debt Do Us Part”. A woman named Gail Vaz Oxlade helps couples fix their financial and resulting relationship troubles, I think you’d really like it, it might be available online. She uses a similar system, but uses jars instead of envelopes.

    • Anika, my husband and I love to watch this show, unfortunately, I don’t think they are showing new ones here in the US anymore! They show a lot of junk on television, but not a lot of quality shows…go figure!

  3. Thanks for spelling out how your envelope system works. I’d never seen the USDA food cost guidelines before – very interesting to gauge how I’m doing for our family.

    A couple ideas I’d love to hear more about, if you care to share: what vitamins you use for your kids, and more about the process of helping your husband organize his shop. I’m about to embark on a basement/workshop organizing project with my husband and I’d love to hear how you went about it. I’m the organizing fanatic and he’s the kind who saves the nuts and bolts for someday – I’d love for him to be able to find what he needs, when he needs it!

  4. This is fantastic Heather! Thank you for posting it. I have wanted to use the envelope system for awhile now but didn’t know how to determine the amounts. This is my Saturday project, can’t wait to start!

  5. Wonderful post Heather! Jack and I use an envelope system also. In our family, Jack is the saver and I like to spend (unfortunately). I have to say, I do like using this system because it keeps me grounded…if the money is there, we use it…if it’s not, oh well…better luck next month…LOL! I’m sorry for everything you and hubby have been going through, but it seems like 2015 is going to be a better year for you both! I will continue to keep you all in my prayers…xo

  6. As always, Heather, you come up with a winner! I’ve been trying to track our spending and everything I was finding was attached to a bank account…..so the whole thing is expected to balance…..and they don’t easily split transactions. All I want to do is see what I’m spending on each category.

    And this should do the trick!

    Thankyousoverymuch! (although I would be a bit happier had I not spent money on a program that is better, but still overkill)

    I tried a cash system a while back. Its difficult though pulling a number out of the sky. What tended to happen was that I would see a really great deal that I should stock up on and ….the envelope couldn’t support it. I was, though, filling envelopes weekly. I think your filling them monthly would make it easier. You still know what you should spend per week, but would have “funds” available to scootch into the next week’s money if that bargain came up.

  7. Heather thank you so much for this post! I learn so much from your blog. I was wondering how you budget for gift giving; children’s friends birthday parties, family, my friends, etc… It can get a little out of control when a lot of birthdays fall on the same month. I need to have a better system.

  8. Hey Heather. Sorry to hear 2014 was so difficult. It sounds like 2015 is looking up – I hope you stick with this money system – it’s so much less stressful in a family when finances are under control!
    I’ve been doing Money Coaching under Christians Against Poverty (CAP) through our church and so many couples have found it very beneficial. We use the cash system too for everyday expenses and then use a savings account for less frequent expenses (eg holidays, gifts, car expenses) and then the third account is for all our direct debits (eg utilities) each month. It has worked for us for the past 2 years and i have no end-of-month financial stress anymore! Big hugs to you – all the way from Australia!

  9. The year 2014 was not a great year for us either. My husband has several health issues going on and has been in the hospital 2 times. It scares the daylights out of me because his father died at such a young age. I am trying had to make the best of the situation and he is too but there are a few things he can not change. His job. I wish he would tell them to ‘take their job and shove it’ as the song says. My husband is always the kind of person who gives 110% on the job. Example, his hours are supposed to be 7:00 to 4:00 pm. Yet, in order to get his work done he goes in at 4:45 each day and works till 4:00 or later. He is the boss, but he gets in there and works with the other men, he tells me he goes in early to get his ‘boss’ work done. Just 2 weeks ago they called EMS to take him to the hospital because they thought he was having a 2nd stroke. Lucky for us it was not a stroke, but his diabetes was out of control (his meter was not working and he did not know it) The bills for this even with insurance are going to be awful to pay. Example the ride to the hospital was $902.00 (our part) How in the world do you budget for those kind of expenses? We save, and save, and something always seems to come up to take the money.

    • I know it’s tough, and unfortunately some things in life cannot be anticipated or planned for. One thing I’ve learned is that God works things out for the good of those who love Him. He tells us this in the Bible, and it has proven to be true. I expect it will be for you as well. Keep your chin up, Roxie!

    • Also, I’m glad your husband is OK!

      • I do know God has a plan. I talk to God everyday and pray for some understanding. We learned that David is going to need skin grafts on the bottom of his right foot. He has had a sore there for more than 2 years now and it is getting worse not better. Now we are waiting on the insurance company to see if they will pay any of it. Diabetes is such an awful disease. He needs to have his other hip replaced too. Thank you for your kind response. I need to share my worry with someone and sometimes I do not have anyone to share with.

  10. […] Our Cash Envelope Budgeting System […]

  11. I’m so jealous you’re able to stay on top of the online part of the cash envelope system. We do so much online, and some purchases span multiple categories, this is the hard part for us. Add in the fact that my hubby is very forgetful and he’s the stay at home patent. We struggle here.

  12. Came upon your blog and I absolutely love it!!! I do have a question about this category (I haven’t dug deeper yet lol). Do the house payment or utilities have their own category or is that a different subject altogether???

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