How to Use the Cash Envelope System to Budget.
The cash envelope system of budgeting is an amazing tool for keeping you accountable and on track with your budget! Even if it seems a little bit old school! Although this way to budget has been around for a while, you may not really be familiar with how it works. So here’s an easy to understand guide that breaks it down for you. Also, this system is so effective that using the cash envelope system of budgeting is recommended by Dave Ramsey! Here’s a good explanation of Dave Ramsey’s 7 Baby Steps if you want a quick start guide to his system. The link to free cash envelope templates is at the end of this post.
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In the past, I’ve used it just for a few areas of our budget (groceries, grooming and clothing) and then slacked off. As a result, my spending, especially what I spent on groceries, got out of hand! I was using my debit card but it’s just not the same as using the envelope system (at least for me). I would always know subconsciously that I really had more to spend than my allotted amount if I found a “deal”. I found “deals” every time I went grocery shopping LOL!
Cash Envelope System of Budgeting- A Beginners Guide
What Is The Cash Envelope System of Budgeting:
Basically, what you do is create a spending envelope of cash for your budgeted categories.
source: The Digerati Life
- You create a budget
- Decide on your envelope categories and divide your money accordingly
- You fill your envelopes
- You spend the money in the envelopes and when it’s gone it’s gone.
- Money leftover in an envelope can go into savings, roll over in the envelope, or go to your debt snowball
- Start all over again with the next pay period
For example, if you are budgeting $100 a week for groceries. You would put $100 in cash into your grocery envelope for that week and when that’s gone – it’s gone. That’s all you can spend because that’s all the cash you have. Also, if you only spend $60 then that leftover $40 could go into next week’s grocery envelope, you could put it in savings or you could use it to pay off a bill.
If you’re paid once a month, you would withdraw the monthly cost of all your envelope categories and if you’re paid twice a month, you would withdraw half of your monthly budgeted amount each time you’re paid.
It may take a while to get your envelopes set up correctly. So don’t be discourage if you go under or over the first few times.
Remember – don’t ever take all your envelopes out with you at one time. Be safe and only take the ones that you will be using.
You can use plain white envelopes, ziploc bags or I have a free template that you can use to make some fun one. You can also buy wallets set up for the envelope system here on Amazon
How to set up your envelopes:
Only you can decide what categories to use envelopes for. Obviously expenses like your mortgage or car payment etc. would not be put in envelopes. Not every budget category is suited to this system. Some categories you’ll want to pay on line or with a check. I would suggest having a miscellaneous envelope for little unexpected things that pop up. Groceries is definitely a good one to use this system on. As well as dining out!
My Snazzy Envelope System from Dave Ramsey
Envelope Category Examples
Some people like to have a gas envelope. Some people don’t want the hassle of going in to pay for fuel, they want to pay at the pump. Someone might spend a lot on cosmetics and want to control their spending in that area. An envelope with a budgeted amount for that category would be a good idea. Me – I hardly wear makeup so I spend close to nothing on it. That’s not a category I need to control.
On the other hand, I have added Books to my envelope system because I could go crazy (and often have) in a bookstore. Even though we utilize our library AND we buy books at the thriftstore, we still spend waaaay too much money on books.
I’ve also given myself a Thrifting envelope. Because honestly, I have a very nice Goodwill about 10 minutes from my house and I could buy something there every time I go! Whether I really need it or not! Little dribs and drabs of money, here and there, they all add up in the end. So I’ve given myself a small budget to buy totally useless but pretty things. This does not include some major pieces of furniture I’m looking for which is in another budget category and might or might not be purchased at a thriftstore.
I’ve also added a Dining Out envelope. We try not to eat out alot, but we were getting into the habit of having lunch out every Saturday along with breakfast out during the week and an occasionally dinner out also. That’s just too much money going out of our budget for that in light of the fact that we have a daughter starting college this year plus we just had to have a new furnace/ac unit installed PLUS all the other things we want to do – on one income.
Give it a try. Start with one category and see how it goes. It may take a few months to tweak your budget and get the right amount for each category. So don’t become discouraged if it doesn’t work for you right away.
I think using the envelope system lets you really comprehend how much money you really really have versus some abstract or general idea of how much you have to spend.
More Resources: Cash Envelope Template
I now have my own cute envelope designs available as free printables! Download and print one of the pretty templates and follow my tutorial to make your own envelope system envelopes!
For additional information visit these linked sites:
Dave Ramsey Envelope System
Simple Mom – Envelope System – great post about how she manages it
Mvelopes – an electronic version of the envelope system for those that don’t want to carry cash. I’ve never used but have heard alot of good things about it.
iPhone apps for virtual envelopes – just search envelope system – there are quite a few out there
Do you use the cash envelope system of budgeting already?
You may also be interested in: How to Make a Budget Binder
Manuela what a simple yet very effective sounding idea! Love it!
I need to pick up his book now that you recommend it so highly. We have some shopping to do on Amazon and I'll tell my hubby about it. He loves books about this.
Stay Warm & Happy Sunday! ~Melissa 🙂
I used to do the envelope system. It worked well when I was a new wife still trying to figure everything out 🙂
I love this system. Although I don't always do it, there are always times during life where the belt really needs to be tightened…and the envolope system is the only thing that worked. It helped us keep track and be more accountable for our money. And when you have it right there in front of you….when you know that a trip to the mall may make you eat PB&J for a week…..You re-think things.
We've used this system for big things…Debt repayment, saving for a move, Saving for a big home repair or purchase, a vacation….etc.
Thanks for posting this though….it helps remind me why I love using cash when possible….accountability!
What a great post! I thought of beginning this plan awhile ago, but at the time it wasn't possible… Hopefully once we are settled in our new home I can start…the pretty envelopes sure help me want to begin soon! BTW, I love your new blog design and button. I added it to my blog. Hope your weekend is going well.
~Christine
I used the envelope system years ago when my children were young. It really works well because I could see what I had left and planned accordingly. We also put $10.00 a week in a Christmas envelope. With 4 kids that really helped defray the cost of the holidays. Mimi
We haven't used the envelope system yet, but I think it's a great idea! We only use cash so it would be perfect. Thank you!
MAYBE I NEED TO DO THIS FOR GRAND CHILDRENS BIRTHDAY GIFTS…IT'S GETTING EXPENSIVE, ESPECIALLY TO MAIL IT TOO! COME SAY HI 😀
We've used the envelope system more than once and always found it very effective. We've gotten a bit 'lazy' lately and wandered back to the debit card. Your post today goes along with some of the changes we're making this year to have better control of our finances. Thank you for the wonderful envelope ideas. I found answers to some of my complaints about our own former system. Love the creative ideas of using something besides plain, old envelopes! ~Adrienne~
Thanks for the link to Kelleigh’s blog. I'm trying to read only blogs about organizing and saving money. Decorating blogs I love but they make me want to spend money and that is not where I want my life to go right now.
My mother-in-law used this system all her married life. I thought it was crazy, but I may have to rethink that.
My parents told me that when they were first married they used this system and it worked very well. As a newlywed, I really can't wait to start using this! Winning your giveaway will help!
Thank you for your inspiration! It sounds very smart to do so, but I don't like to have too much money in the house, I think they are saver at the bank 🙁
I have to say that this is a good system but I wouldn't keep to it. I guess because we don't have to budget that much and we don't have an endless supply of money but we don't spend a lot on extra stuff. Just regular bills. My most expensive thing monthly is our grocery bill. (other than our house payment) I could use an envelope for that:)
I will say that anyone trying to get out of debt, this would be a great way to do it. I love the evelopes. That would make it much easier if you were pulling out pretty envelopes instead of white ones:)
Wow what an easy and simple idea! I am the kind of grocery shopper that goes every 1-2 days. I grew up in Europe where you go to town everyday to get what you need for dinner! But I find it all adds up at the end of the week. This sure would help me keep control of the $! Thanks:)
I just posted about going back to the envelope system for our grocery spending on my blog yesterday. We had cash leftover at the end! That never happened when I used my debit card. Cash is king!
Thanks Manuela for reminding me that a simple system such as this is often all we need to get back on track…no need for fancy software to track your money…just envelopes and pen & paper!
My daughter and her husband use this system. It works for their family budget and spending habits.
I'm soooo good in every spending place in my life except TJ Maxx. That's my weakness. I should do the envelope for a TJ Maxx budget. I confess I stop by at least twice a week. But, only because it's across the street from Trader Joes and a family needs milk, right?
Manuela the jar system is great! Good to hear people are keeping track of their finances and not getting in over their heads. We use jars at our house. Small jam jars and I have a notebook which we jot down and hold receipts for all our purchases. Leftover money either gets carried over to the next month or we buy ourselves a treat.
Great post!
Have a great day!xx
My husband and I got away from our envelope system over the holidays but we are back at it this month. We usually have envelopes for our groceries and gas but I'm thinking we should do it for entertainment and for my thrift store and fabric store, too. Great post.
You have the best ideas, Manuela! I've had the Dave Ramsey book for a few months and haven't taken the time to read it. This has really prompted me to read it and start the enveloope system. We have friends who have followed his system for at least a year now and have paid off a SIGNIFICANT amount of debt. It definitely works! Thanks for sharing. Hopefully, we'll have safe roads around ATL tomorrow:)
Hi Manuela,
My family is also an avid Dave Ramesy fan! He has been a saving factor in our lives on many levels. The envelopes I use are just plain and get yucky after a couple of months…I definitely want to try to embellish them! Thanks so much for sharing!!!
They say that people that don't change bad habits are afraid because it is "uncomfortable" to change. This would be uncomfortable for me. We don't get ourselves in debt but we use credit card for everything to equal points. I have often said that if we used cash only and actually "felt" like we were spending money we would shock ourselves. This is a great idea and I would love to try this. You are inspiring.
Have you heard of https://www.youneedabudget.com ? This is the ULTIMATE envelope budgeting system! I've been using it for almost 2 yrs and love it. It's an actual budgeting program that you load and it replaces Quicken or your other software. What you do is set up categories (envelopes) and budget into them based on what you have available. So you're budgeting *in advance* just like using envelopes but yet you can use your debit card, cash, checks, etc and don't have to carry cash around if you don't want to.
Like others here, my husband and I used this system as newlyweds- when we were both working. It was a wonderful way to get a handle on where we were spending, and how we were saving. After a while we didn't "need" it anymore.
If you havent' given this a try, it is worth it.
j.
Manuela, we did the envelope system with our kids (now grown)becinnning in 7th and 10th grades. We gave them envelopes for clothes, school supplies, church tithe, food, etc. and said, "This is it. Don't ask for more. You'll get more at the beginning of the next month." It worked wonders! Our daughter started shopping frugally instead of and all of THE cool stores! Larry Burkett had actually written a book with this system and we employed it. I think I'll go back to that for the grocery store – you are right about being careless with the debit card! Thanks for the reminder. Linda
I think the envelope system has been and is a good system for keeping control of one's budget. Thanks for sharing. have a great week.
Great thrifty budget idea!
This really is a great system, and a pretty envelope makes it more bearable to budget, don't you think?:>)
I hardly ever wear or buy makeup either. Seems so silly when I'm just going out in the garden more often than not. I don't go out but once or twice per week, so that helps. Of course there's those Etsy purchases. One thing to look forward to, Manuela. When we were forced to get a new heating system two years ago, sure helped our heating bills. Concerning the quilt you asked about. It probably took me a month or so to make it. And back then (in the nineties) I didn't have a sewing machine. I hand pieced and hand quilted. Neither my hands or eyes could do that now! I just loved it though! I cherish my quilts.
Brenda
I do chash but never done envelopes but I am intrested xoxox Clarice
This a great idea! I don't wear much makeup … sometimes go for days without any! I don't go much, although I do need to have an envelope with me when I go to the quilt shop or Hobby Lobby. Fortunately my hubby takes care of the finances…thank goodness!
Thanks for sharing this. I may order his book off Amazon..like the free shipping if it's over $25!
Blessings,
Donna
Manuela, I just told my husband that we're getting back on the envelope system! My grocery budget has also gone out of whack. This last year medical expenses have been a killer, so we've got to get back on track.
I use the envelope system when we go on vacation. I figure out the amount of money I want to spend each day and divide it up before we even leave the house. I also include a little extra on day one and the last day to include airport expenses, etc. I LOVE the envelope system! I don't use it on a regular basis because we never carry cash unless we're on vacation.
We love the envelope system and have used it for a couple of years now. We have many categories. It's so helpful when holidays and birthdays come to have a Holiday/Gifts envelope. Clothing envelope is really good, too. This system really makes us look at our purchases and make better decisions. Now, to start making prettier envelopes! :o)
Thanks for the post!
Kami
adayinthelifeofamissionarywife.blogspot.com
We went to our first Financial Peace University class tonight. What an inspiration!
Thanks,
Matty
The envelope system is a great tool! Thanks for reminding me. I had stopped (can't remember why) but as part of my new 2010, frugal is definitely a "return to" item for us!
sweetjeanette.blogspot.com
Hi Manuela~
I love this idea! I was not born a frugal person, although I married one! My tastes are simple, but when it comes to my home, I can get SO carried away with projects that it's hard to keep it on budget! 🙂 "Home Improvement" would be a very good envelope to use for us! I like the idea also of using envelopes for other categories like groceries, and saving what you don't spend towards something else! (Motivation to be keep spending down!)
I love the envelopes you used, too! I never would have thought to do that! Oh, and those fabric envelopes are lovely! 🙂
I hope you had a wonderful weekend!
BLESSINGS,
Jenni
Hi Manuela,
This is so funny, my husband and I were just talking about showing our teenagers the real value of money. We use this envelope system to help us budget, especially after the babies came along. But through the last few years, we have just got in the mode of shopping for best price. My teenagers need to re-learn the fact that when the pocket is empty, it is empty. And that doesn't necessary equate to being "poor", which they have no idea about. It just means your are being a responsible consumer.
Have a great day!
Love, love, love the Envelope System!!
Mike and I used this system for years and years with fantastic success. I also adapted the concept to save for the holidays!! This is a great inspiring post Manuela (as always).
Thank you so much for sharing all your good thoughts and ideas.
Love,
Tracey
x0x
I have heard Dave talk about the envelope system many times. I have never tried it, although I do try to follow allot of his recommendations, This is one I really need for the grocery store and the thrift store. I'm not really that bad with any other shopping. Thanks for sharing, this was very informative, and good to hear from someone who has actually used the system.
Sandy
I'm actually in LOVE with Dave Ramsey!!! He has completely changed my life and I go through withdrawl if I don't get to listen to him every day on the radio. = )
Great post! Thank you!
We used to use the envelope system, but got out of the habit of doing it a few months ago. I really need to break them out again next month though, because we are overspending many categories.
Hi there Manuela,
What a marvellous, great post! Just to let you know I am trying this 'envelope system' after reading your post here but by using some free 'Angpows Envelopes' that I have kept somewhere 🙂
Thank you again!
I use the exact same system on vacations – each day when we wake up, we each get a new envelope with the days spending money. If you had some left from yesterday, GRAVY! And once its gone for the day, you are done! (Works ESPECIALLY well in Vegas, LOL)
This is a great post! Our church did the Dave Ramsey seminar, but it was held on an evening we couldn't attend.
I'll check out the link!
I just started using the envelope system at the beginning of this month. It's such a simple yet very effective way to keep spending under control. So glad to see that it's working for so many others as well.
Thank you for this great idea! I’ll try to use it to curb our budget.