How a 10¢ Envelope Saved Us $300 a Month

For years, my wife and I have been diligent about tracking our spending and keeping a monthly budget. We had our notebooks in which to track all purchases, and I had my spreadsheets where I would predict spending each month. At month’s end, we would compare the plan to the actual spending to see how we did. We did this for four or five years; but most months, we were off, sometimes by quite a bit. This was discouraging, because being so diligent should pay off with consistent wins. Many months we were off by at least a few hundred dollars. When this happened, we either had to save less than planned or dip into our emergency fund to make up the difference.

Last June we really blew the budget, and it was not because the car broke down or some other big, unexpected expense popped up. The trouble was the grocery bill. We had budgeted $550 for food, which should be plenty for a family of four, especially when two of the four are very young. My wife and I both cook, and we know how to shop the sales and plan meals accordingly. We eat leftovers, and we know about 18 different ways to turn the leftovers from roasted chicken dinner into something else. 

At the end of the month when I tabulated our purchases to compare the spending plan to what we actually spent, I discovered that we had gone over budget – by more than $300. My jaw hit the floor! How did this happen? As my wife and I looked back over the month, we just could not figure out how we had spent so much. We were not eating porterhouse steaks and fresh-caught salmon fillet every night. We did not host a big dinner party or a huge BBQ. The only answer that made sense was that we had simply become super-sloppy in our spending. We must have bought too many convenience foods, too many top-shelf items, we did not shop the sales, and we must have been tossing our leftovers down the disposal. Whatever the cause, we knew that this budget busting boo-boo could not happen again. 

Spend less when you shop –

pay with cash.

The simple solution was a 10¢ envelope.

At the start of the new month, July, I took $500 out of our checking account and put it in an envelope. I handed that envelope to my wife – who does most of the food shopping – and said, “Good luck, baby!”  That $500 was our food budget for the month, and no matter what, we were not going to spend a dollar more. Period!  We prepared for a month of rice & beans as we joked about the ramen noodle dinners, dumpster diving and fasting that was sure to come. 

This envelope plan might seem slightly unusual, but up until about 40 years ago, this is the way that everyone did it. There was no other way. Our great-grandparents did not have Discover cards. They had cash, and when it was gone, it was gone.

Would you care to guess how much we spent on food in July?  Just under $500. Success!

We shopped the sales. We planned the meals. We ate the leftovers. The crazy thing is that we ate as well as ever! There was absolutely no sense of deprivation or loss.  There was, however, a tremendous sense of victory! Hurray for us! We were finally getting real control of our spending.

What we experienced in July was a universal truth: There is just something about using cash – cold, hard cash – that changes the way we shop and spend.  Peeling off dollar bills feels different than swiping a little plastic card. Somehow, it hurts more. As the month goes on, you see your food envelope getting thinner and lighter, and you instinctively begin getting conservative because you don’t want to run out of dough.  

This little budgeting trick – the power of cash – has not been lost on the merchants where we all shop. Merchants KNOW that shoppers who use plastic to pay spend 10-20% MORE than shoppers who only use cash. That is why the merchant is willing to pay a 2-3% FEE on every transaction processed by a bank or credit card company. That is why stores try so hard to get you to sign up for their own brand of credit card every freaking time you try to cash out. Merchants pay the bank fees and push their own store cards because YOU WILL SPEND MORE if they accept plastic as payment.

Cash is King, in more ways than one. If you want to spend less of it, skip the plastic and go old school. If you want to give yourself a “virtual raise” by cutting your spending, the “cash envelope” is the easiest way to do it. It really works! Merchants know it. Banks know it. Great-grandma knew it. Now you know it, too.