Using The Cash Envelope System for Achieving Your Savings Goals

Many of us have very little in savings, and with the current climate it is easy to see why. But, having savings can help with those unexpected bills that might pop up from time to time. This is where the cash envelope system can help you achieve these.

Firstly, let’s talk about savings goals.

I’m going to split these into two types for this post; short term sinking funds and longer term savings goals.

Short term sinking funds are things that you may need the money for in the next twelve to eighteen months or so. Things you might include in these are:

  • Birthdays
  • Christmas
  • Holiday
  • Car MOT
  • Household Repairs
  • Car
  • Children
  • School
  • School Holidays
  • Clothes
  • Shoes
  • Pets
  • Medical

Again, the list for short term sinking funds can be as long as you make it! I currently have 11 sinking funds in my cash envelope sinking funds binder. These are the ones that I know I will use in the next twelve months or so. Bar one of them – which is going to take longer to save for – these are set up for my family circumstances. This is the beauty of cash envelope sinking funds!

Have a Think

So, have a think about what you might need to have a pot of money for in the next year or so. It might be a few things, or it might be a lot. That’s ok! The main part of this is so that you are setting yourself – and your budget – for success.

Once you’ve decided on your sinking fund categories, you might be wondering how you are then going to achieve the savings part of this. Well, again there are two options.

The first option for hitting your savings goals using the cash envelope system is to factor them into your original budget. If you have enough income that can stretch to making savings part of your everyday budget, then that’s great! Have a think about the total amounts you might want to have.

An example from Frugal Cottage

So, for example, if you want to have £500 to spend on Christmas and you want to hit that target by the end of October so you can be really organised, it’s just a simple sum to work that out. You take 500 and divide it by 10 (the number of months you have to save if you start at the start of the year). To hit your target, you would need to save £50 a month into the Christmas envelope to hit your target in the expected timeline.

You then need to repeat this for all of your other categories. Don’t panic at the number just yet!

If I use myself as an example, I can’t meet my savings goals by using my income alone. Why? Because I have had a massive change in personal circumstances and my income alone doesn’t even cover the everyday bills most of the time. So, all of my sinking funds (which I share monthly updates about over on my YouTube channel) are funded by leftover cash from my weekly envelopes or by my side hustles.

If your income is big enough to cover all of this alone, then that’s fantastic. You are in such a good position! Start working out those sums and get set up straight away. It’s so easy to do and it will give you such a peace of mind to know that there is a pot of money there to cover something, when the time comes.

Getting Creative

But, what happens if you can’t cover all of that with your monthly/weekly income? Well, you might need to get a bit creative.

Firstly, if you are using the cash envelope system for your variable expenses – I wrote a post about it here if you want to have a read of that first you can use that to then help you also hit your savings goals. Any money you have left over at the end of the week (or month) can get rolled over to your sinking fund envelopes. So, say you had £30 left of your food budget and £20 left from household, then that £50 could then be split over your sinking funds. In fact, you could even make this into a bit of a challenge! See how much you can not spend during the month so you can add it to your sinking funds at the end.

Of course, once you start looking at ways to save money, you might also want to consider starting a side hustle or making money online. But that’s a post for another day.

Long Term Savings Goals

This system can also work exactly the same for long term savings goals. Just work out the timeline, the amount that you want to have as the end goal and then split it down into months. So, for example, if you know you will want to buy a new car in 5 years time and will want about £8,000 for it. Just do the simple sum – 5 years = 60 months. £8,000 divided by 60 = £133.33 a month. So, in order to meet that aim, you would need to save an average of £133.33 a month to hit that goal.

So, another way the fantastic cash envelope system can work. Not only can it help you budget on a weekly basis, but it can help you save for your longer term savings goals as well. What’s not to like!?

Have you thought about savings this way? Are you going to try it? 

This is a post from Nicola AKA Frugal Cottage. Nicola is an award-winning personal finance blogger who loves talking about budgeting, investing and frugal living. Mum to two young boys, you can find her on her thriving YouTube channel, popular Instagram page, or over on her website, The Frugal Cottage.


More to explore

How To Use The Cash Envelope System

There are so many budgeting posts around, with various budgeting methods being discussed. But, how do you know which one to use?


Lynn Beattie

Aka Mrs MummyPenny

Personal Finance Expert

I write about personal finance made simple, lifestyle choices that will save you time and money, as well as products and services that offer great value.

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