Cash Account Vs. Cash Envelope - Pros & Cons?

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I originally spent a very long time setting up my (now) 41 envelopes. Most of my financial action happens thru my Debit Card. I do also spend cash. I’m a trucker and am wary of swiping my card in tiny mom and pop gas stations across the US. At first I was recording the ATM withdrawal as a transfer to an Envelope called Cash. Then when I spent the cash, would transfer it to the proper envelope to cover the expense transaction. This seemed like a bunch of work so I went back to create an Account called cash. Unfortunately this seems to have the same problem. Or i’m doin it wrong.

My question is what will the least complicated option be?

Update: I also just tried to enter $100 ATM withdrawal. Entered as a Transfer - Account to Account. Worked fine. The $100 moved from Checking Account to Cash. As far a the envelope system....it remained in “Unallocated”. I thought “Eureka”! I can just enter cash expenditures as an “Expense/Credit” Transaction - Select “Cash” for account and choose “Unallocated” as the envelope and abracadabra, no second transfer between envelopes required. Alas, twas not to be. Unallocated isn’t in the envelope under Expense/Credit Transaction. Grrrrrr
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Phil Shuart

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  • undecided

Posted 2 months ago

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Alex Park, Official Rep

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Hi Phil,

It sounds like there are two desires you have in your Accounting. First, it sounds like you'd like the relevant Envelope category to be connected to your transaction (i.e. grocery purchases through Groceries Envelope). Second, it sounds like you want some way to note that the purchase was made through cash rather than through another method / account.

Because of these two requirements, the best strategy would be to use a Cash Account. You would represent ATM withdrawals exactly as you noted, as Account Transfers from your Checking Account to your Cash Account. Then when you spend the money, it'll come out the relevant Envelope and your Cash Account -- Unallocated shouldn't need to be a part of this transaction because theoretically you'll have already allocated the money in an earlier Fill.

The Cash Envelope method could work, but it has a few issues. First, it doesn't let you know how much cash you have on hand, and doesn't leave as clear a trail to show you how much you've withdrawn from your Checking Account. Second, because of your first requirement, it's more tedious because it requires you to Envelope Transfer every time you use cash. Because of this, I think the Cash Account is the way to go.

Hope that helps!
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Wayne Woodbury

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I had a teacher who's answer to everything was "that depends."  I think that applies to your question as well.  The question is, how closely do you need to track your cash transactions while you are on the road?  If you don't need to track them that closely, you can lump those expenses into a single envelope (e.g., Road Cash) and not create an account for it.  When you withdraw the cash from your bank account, you can record a single expense transaction for those expenses.  You can then spend the cash at will without having to record each one.  You can keep the receipts you need for tax purposes without tracking it in the software (although, tracking that stuff in the software sure makes tax prep a lot easier).  You've got to tally it up sometime; you can do it as you make the expenses, or you can do it with a calculator and a stack of receipts at 11:00 pm on April 15.

On the other hand, if those expenses come out of multiple various budgets that you want to track, then I recommend you set up a cash account.  When you withdraw money from the bank, record it as a transfer transaction.  Then, each time you spend cash, you can record it against the cash account and apply it to whichever envelope(s) you like.  That way, you track the expenses and can account for your expenses in your budget.

On a personal note, I have found it difficult to maintain accuracy with cash transactions as I constantly forget to record them and I lose the receipts.  I end up creating dummy transactions to get my cash account balance to match up with what is in my pocket.  Cash accounts require a very anal-retentive mentality (I can be very anal retentive, but in all the wrong ways).

So, you see, the real answer depends on your personal needs.  Time spent recording each transaction now might save you time and stress later on, but it might also be just a lot of work now that has no real benefit later on.  Setting up a cash account allows you to track all of your cash transactions against a variety of envelopes, but if you budget for those expenses out of a single envelope, it might be easier to not set up a cash account and just record the bank withdrawal as the only transaction for your travel expenses.

Hope that helps.