The Cash Envelope Method

The Cash Envelope Method



After getting to a place where you have a budget set, it’s easy to wonder how to actually manage your money and what to do next!

Enter: The Cash Envelope / Pot Method!

I don’t want to be melodramatic but this is the method which CHANGED MY LIFE!

I used to live in a cycle where I got paid, moved a bit to savings (maybe) and left the rest in my bank to cover bills and spending for the month, hoping my card didn’t decline and that I’d have enough money to get me through, then wonder at the end of the month where it all went…. Sound familiar?

Now, I split my budget into categories for my spending and sinking funds, as explained in my budget setting posts. For example, food shop, petrol, fun money, beauty, car insurance, emergency fund, travel fund, holidays, Christmas etc.

I now have two bank accounts - one for my salary to go into and direct debits to come out of, and another which has pot functionality for my spending and saving. There are many banks which offer this such as Monzo, Chase, Starling.

On payday, I leave enough in my bank account to cover my direct debits and bills for the month, and EVERYTHING else I move into pots in my banking app! 

I used to use physical cash, and to follow the cash method in this way I would go to the ATM on payday to withdraw everything except my bill money which came out on direct debit. At the time interest rates were 0.1% so I wasn’t losing out on interest, but one day my handbag was stolen (fortunately without any money in) and it made me worry about having large amounts of cash on me.

I had a physical envelope for each category and kept it in my purse (if it was for spending) or at home for sinking funds and savings! This is obviously not 100% secure and it’s also important to be mindful of what amount of cash your home insurance will cover! 

The pot method is exactly the same process but instead of envelopes, I use pots on my online bank to allocate my money. It’s also safer from thieves and can generate you interest now too ⠀

This way I know exactly what I have and for what, for both my spending and my saving goals!

I don’t need to worry about my bills as I know they’re covered in the other account, and insteqd of one lump of money in my bank which seems to just melt away, this really helps me tighten up my spending habits and prioritise my money!

Throughout the month, I can see exactly how much I have left for each category so I know if I need to be mindful in any areas that I could be overspending , and it makes it really clear to see how much you have left! 

If you’re interested in setting up an online bank with pots, I have a referral where we both get £5 if you’re interested! 

Monzo £5 Yes Please!

Let me know if you use this method and how you find it! 

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