Paying cash for daily expenses can help you lick that credit card debt for good.

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A few years ago, I began using a cash envelope system to pay down a high credit card balance. To do this, I placed a budgeted amount of cash into separate envelopes marked with expenses like groceries, restaurants and other daily costs. Then I paid cash for any items in those categories.

Handing over cash made me a more careful spender. I no longer blew through hundreds of dollars with a series of painless swipes and little thought. As a result, I paid off an $8,000 debt in 18 months.

I’m a big believer in the cash envelope system. However, I had to experiment with different methods before I found one that worked for me. I’ll tell you about that in a bit. But first, let’s look at how to use a cash envelope system and why it makes you a better money manager.

Choose your cash envelope system

The first thing you need to do is create a budget or refer to the budget already in place. Then figure out how much cash to place in each category’s envelope for each pay period.

Here’s an assortment of envelope systems to get you started…

Don’t delay the process by getting caught up in color-coded systems or shopping for the prettiest envelopes. If you have a mailbox and a recycling bin, you have plenty of envelopes.

Designate cash-only expenses

I use a credit or debit card to pay recurring expenses such as utilities, insurance and property taxes online. I also use plastic at the gas pump. (If you use a credit card, pay it off monthly to avoid more debt.) Designate envelopes for groceries, restaurants, prescriptions, clothing, health and beauty, medical bills, child care, pet food and other expenses.

Don’t cheat

If you run out of money from the restaurant’s envelope, dipping into the groceries stash defeats the purpose. You’ll probably need to adjust your amounts over the first couple of months.

Try a different take on cash allotments

I like personal finance author Avraham Byers’ “Magic Number” method, outlined in his free e-book Your Magic Number. With Byers’ method, which doesn’t restrict you to using only cash, calculate your annual net income minus annual fixed expenses. Then divide that number by 365 days. The quotient is the amount allotted for each day.

For example, if you earn $50,000 annually and your fixed expenses come to $30,000, that leaves $20,000. When you divide that by 365, you have a daily “Magic Number” of around $55 per day. If you use cash envelopes with the Magic Number method, you’d place $55 in an envelope for every day of your pay period. Whatever is left over goes into the next day’s allotment.

Eventually, you’ll have a wad of extra cash you can use for groceries, haircuts and larger expenses.

Create your own hybrid

Even though I used the traditional envelope system at first, I had a bad habit of raiding off-limits envelopes when I ran out of money. At the same time, my “Magic Number” was hard to predict due to fluctuating income. So I implemented steps from each method to create a system that works for me.

I spent less when paying cash for daily expenses, so I continued using envelopes. But I now designate a separate envelope for each day of the month rather than for various categories. Groceries, dining, lattes and whatever else I need comes out of my daily allotment, an amount that changes slightly from month to month.

Then I toss any excess money from those daily envelopes into a coffee can to raid for weekly groceries, movies, travel or other needs. This method motivates me to have something left over every day, which means I spend less. That’s the whole point of the envelope system, to curtail mindless spending and pay attention to where your money is going.

You’ll have to put your own stamp on the envelope system that works for you. Once you get your method down, you’ll be on your way to having more cash to pay off credit card debt instead of adding to the balance.

Meet the Author

Deb Hipp

Deb Hipp


Hipp is a freelance writer based out of Missouri.

Budgeting & Saving, News

money management, save money, Very Personal Finance

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Article last modified on August 29, 2018 Published by, LLC . Mobile users may also access the AMP Version: How to Create a Cash Envelope System That Works for You - AMP.