Woman shopping and looking in wallet
photo: Corbis
There are countless personal budget apps to help you manage your money, but – as much as I’ve tried – I haven’t been able to stick to using any of them. So about five years ago, I started using what may seem like the most archaic system I learned from a random Cuban abuela I met at a bank more than 15 years ago.

I’ve never been happier with my finances and more in debt-free in my life.

I was standing in line at a bank and this grandma-like lady caught my attention as she whispered to herself while separating cash with paper clips, “$60 for food, $80 for the bills, $40 for gas, etc.”

During the next few weeks I saw her again and again doing this at my neighborhood branch until I finally got up the nerve to ask her what she was doing.

The Cuban lady nonchalantly answered, “I separate my money every month for what I need and leave my checking account balance at zero. It keeps me from overspending. But you have to have discipline.”

What she was doing was The Envelope System: You figure out how much cash you need for the month to cover everything from groceries to dinner with friends, and then you withdraw those exact numbers from your account. Every time you have to pay for something, you only pull out cash from the envelope for that specific category.

I didn’t think much of it until about 10 years later when I found myself financially overwhelmed, always playing catch up with my checking account. So, one day the Cuban abuela’s advice popped into my head and I decided to try her system. I now rely on cold hard cash to pay for everything, except monthly bills like school loans and health care. My system may seem super tedious and it does require discipline, but it’s the only plan that’s kept me in check.

I have envelopes for groceries, gas, household items, laundry, clothes, personal maintenance, pets, and, most importantly, fun. You can’t just work to pay the bills, so make sure you set some funds aside to enjoy yourself guilt-free for a dinner with friends or a night out.

You can even add a little flair to the envelope system as these folks have done, but I use plain white envelopes.

Before adopting this plan, I found myself using a credit card and overspending even though I knew I had a limited amount of money for groceries and shopping. Then, I read that there is an innate reaction to how we spend cash versus using credit cards. It’s all rooted in psychology.

“Parting with it [cash] is just a more vivid sensation than the abstract act of signing a pledge to pay sometime later in the future,” Cornell economics Professor Robert Frank said in an NPR interview.
So according to science, it’s much easier to swipe a plastic card than to part with actual bills.

In my experience, the most important thing to remember is to not use money from one envelope to cover another. Don’t cheat. This might help you discover that you spend more on certain things, and, perhaps it’s time to curb your habits to stay within your budget. Still, be patient with yourself. You are learning a whole new way to handle your money, so you might have some setbacks.

For example, you might forget your envelopes at home (go back and get them!), or be wary of carrying all those envelopes full of cash. What I do is only take the envelope I need for a particular errand. If at the end of the month you have extra money in one of your envelopes, go treat yourself!

This financial system has worked so well for me that I’ve told all me friend who will listen to me about it. Still, it doesn’t worked for everyone. There are pros and cons, and it really depends on you. If you had told me that years ago I would be thanking my lucky stars for meeting that Cuban abuela at the bank, I wouldn’t have believed you. But then again, I couldn’t have guessed that a bunch of plain white envelopes would be the surefire way to keep my money matters in line either.