Most of us have good intentions when it comes to budgeting.  We create a spreadsheet, set a maximum spending amount for each category, and plan to stick to our budgets faithfully.

Then we forget about it.

We might have a general idea of how much we plan to spend in each category, but we swipe our debit cards all the time without even really thinking about it.

Maybe we login to our bank accounts two weeks later and realize we’re wayyyy over budget.  Oops!

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Personal finance expert Dave Ramsey claims that Americans have lost our ability to “feel” money.  Society has made it far too easy for us to spend money on autopilot.

We can go on a shopping spree with just a few clicks on a computer, pay with a credit card, and forget about it until we get the bill a month later.

Our tendency to swipe cards without tracking what we’re doing makes it difficult to stick to a budget.  Dave recommends the cash envelope system for budgeting.

What is the cash envelope system?

With this method, you will have a separate cash envelope for each category of your budget.  For example, you may have an envelope for “eating out”, another for “clothes”, one for “groceries”, and so on.

You might put $100 in the eating out envelope, $50 in the clothes envelope, and $400 in the groceries envelope.  Once you run out of cash in the envelope, you are no longer allowed to spend money on that category.

Hit your $100 for eating out already?  No more eating out for the rest of the month.

Why It Works

The purpose of using cash is to get you to “feel” money again.  When we can physically see the money being taken away from us, we’re more mindful about the purchases we make (in theory).

We no longer shop on autopilot and we become more intentional about our spending.

It’s also much easier to track this way.  All you need to do is get out your envelope and quickly count how much cash is remaining for the relevant category.  There’s no need to update a spreadsheet every day or login to your bank account daily.

In short, the cash envelope system:

  1. Forces you to not overspend. When the money runs out, you’re done.
  2. Encourages you to spend less.
  3. Makes you more intentional with your money.
  4. Reminds you that you have a limited amount to spend.
  5. Gives you an easy visual of how much money you have.

How do I start using the cash envelope system?

If you’re ready to start using the cash envelope system, follow the steps below to begin!

Step 1: Create a Budget

The first step is to create a monthly budget.  If you need help setting up a budget, check out our budget bundle which comes with instructions for how to get started!  Once you have an amount set for each category, you can select your envelopes.

Are you tired of feeling broke?

Our budget bundle can help you get on track!


Step 2: Choose Categories for Envelopes

Your budget may contain 30+ different categories, but you probably don’t want to carry 30 envelopes with you everywhere you go.  That’s okay…there’s no need for that!

Instead, select 5-10 categories that you’ll use for your envelopes.  The best ones to choose are variable expenses.  You don’t need an envelope for your mortgage payment or your cell phone bill if you pay the same amount every month and it’s automatically withdrawn from your account.

Here are some examples of categories you may want to include for your envelopes:

  • Groceries
  • Eating out
  • Entertainment/date nights
  • Clothes
  • Haircuts/makeup/beauty
  • Discretionary spending
  • Hobbies (art supplies, scrapbooking, etc.)
  • Coffee
  • Miscellaneous

It’s entirely up to you!  Do whatever makes the most sense for you.  My categories include: groceries, fast food, date nights, outings with friends, household items/drugstore, and spending (miscellaneous).

Step Three: Choose Your Envelopes

If you don’t want to spend money on new envelopes and you have some old mailing envelopes lying around, those will work just fine.  Simply write the name of the category on each envelope and you’re good to go!

Maybe you’d prefer envelopes that are more visually appealing.  There are TONS of options for cash envelopes out there, but you don’t want to overspend on a system that’s supposed to help you save money!

I personally really like these laminated envelopes I found (Etsy shop: greatbynate). These are awesome because the laminate will protect them from damage and they can easily be reused.

cash envelope system budgeting

Want to track your spending directly on the envelope?  We offer adorable printables for just 99 cents in our shop to help you with that!

I tape the printable on my laminated envelopes.  Then next month, I can remove the printable (without damaging the envelope), and I add a new printable for the new month.  This system works great!

Now that you’ve set a budget and found your envelopes, you’re ready to begin!

FAQ About Cash Envelopes

Here are some of the most common issues that you may run into when you’re using the cash envelope system.

Q: What if I have extra money at the end of the month?

A: Congrats!  You’re doing a great job of not overspending. It’s up to you to decide what you’d like to do with the extra money.  You may want to set up some ground rules about extra money before you begin. Here are some ideas:

  • Carry over the money into the next month.
  • Put the money in savings or add it to retirement accounts.
  • Add the money to your debt snowball if you’re currently working on paying off debt.
  • Buy yourself a present or do something fun with the money.
  • Give the money to charity.

Q: Can I move money from one envelope to another?

A: Yes, you can do this.  If it happens occasionally, I think that’s fine.  However, if you find yourself moving money around all the time, that’s a sign of a problem.  At that point, re-evaluate your budget and make adjustments as needed.

For example, let’s say your budget includes $100 for fast food, but you always have extra money in this envelope that you end up moving to your “clothes” envelope.  The solution to this is to decrease your budgeted amount for eating out and increase the amount allotted for clothes.

There’s nothing wrong with re-evaluating your budget and making adjustments as needed.  This does not mean that your budget failed or that you suck at budgeting.

When you first start budgeting, you probably won’t be sure exactly how much money is appropriate for each category, so there will be some trial and error.  That’s totally fine!

From Budgeting Mess to Cash Envelope Success

Ready to stick to a budget once and for all?

Try the cash envelope system!  This method will allow you to truly “feel” money again.  You’ll take your spending out of autopilot and put yourself back in the drivers’ seat.

Remember this quote from Dave Ramsey…

“If you can’t control your money, the lack of it will forever control you.”

Take control of your spending and live like no one else now so later you can live like no one else.