Cash-filled wallet with gold coins around it.

In today’s digital age, we’re so programmed to make purchases with cards that money itself can feel like an abstract concept. This isn’t ideal, especially when studies reveal you’re more likely to spend big when you use cards rather than cash on everyday purchases.

It can be hard to keep track of your spending when you only use plastic. But if you don’t keep close tabs on what’s flying out of your bank accounts or the balance you’re racking up on your credit cards, you might find yourself in a bad spot financially.

So, let’s try a weekly money challenge — with real money — using the classic envelope system. This popular method of budgeting uses cold, hard cash and a hands-on way to manage money. Tangibly holding and seeing where your money goes can help you avoid spending more than you should. Plus, turning budgeting into a challenge can push you to hold on to as much cash as possible.

How to set up the envelope budgeting system

While common practice is to budget monthly, start with budgeting weekly instead. Why? Well, months are long. And if you’re new to budgeting, you’ll probably end up spending most of your money at the beginning of the month and find yourself with very little by the month’s end.

So, grab some envelopes, and let’s get your dollars organized and accounted for.

1. Set aside recurring costs

You can count on some expenses to come like clockwork, right? Rent, bills, subscription services, loans and credit card payments — you know they’re coming every month. So, add them up and set those funds aside. They won’t be part of your weekly money challenge.

2. Do some math

To figure out how much you have leftover for everything else, you’ll have to do a bit of math. Take your net monthly income, subtract whatever those recurring costs are and divide that figure by 4.3. We know, it’s an odd number, but that’s actually how many weeks there are in a month on average.

Whatever number you just came up with is how much money you have to spend per week. And that’s the cash you’re using for your envelopes.

3. Decide on spending categories

OK, now you have to decide how many spending categories (and therefore how many envelopes) you’d like to divide your cash into.

How broad or specific you get with your spending categories is entirely up to you. If you’re a budgeting newbie, it might be helpful to start by doling out your cash into larger categories like “food” rather than a more nuanced approach of “dining out,” “groceries,” “coffee,” etc.

Once you get used to the envelope system, you can get more specific.

4. Divvy out the cash

Consider how much money you think is reasonable for each category based on your past spending habits. Reviewing your bank accounts’ comings and goings might help you find a ballpark number to start with. If you’re a foodie, your weekly food budget may look something like: $25 for groceries, $50 for dining out, $30 for drinks and $20 for splurges, such as coffee.

Once you figure out how much you’d like to budget for each category, put those dollars in an envelope with an appropriate label.

5. Let the challenge begin

You’re ready to start now! When you need/want to spend, take cash out of the appropriate envelope. Throughout the week, remain mindful of how your budget is faring per category. Maybe check on each envelope’s funds each night and adjust your spending accordingly.

To up the challenge, any leftover money you have at week’s end can go toward a savings goal.

Note: You’ll want to keep your envelopes in a safe place, such as a safe or locked drawer.

Monitor and make changes along the way

Budgeting is a living, evolving process. There might be times of the year when you spend more in certain categories — hello, holidays! — and other times of the year when you spend less. Or your needs might simply change.

Your system and approach should change to be in step with your needs. Monitor your success (or failure) with the envelope system and how it’s jiving with you and your lifestyle. It’s not for everyone, but it just might be the perfect system for you.

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