How to use a Cash Envelope Budgeting System (2024)

If you’re new to budgeting and trying to make big changes in your money management, you may have heard of the cash envelope system.

Your first thought is probably, “ugh, what a pain!”

I know. It’s sooo much easier to swipe your card everywhere…but that’s the problem!

When you spend money with a debit or credit card, you lose the emotional connection with money.

You don’t see the actual cash leaving your hand and being exchanged for the thing you bought.

Using cash allows you to see, feel, smell the money leaving your purse!

You know it’s gone. You know how much you just spent, AND if you don’t have enough, you can’t spend it!

A cash envelope budgeting system will help you stay on track, prevent overspending, and keep you out of debt!

Prefer to watch? I’m vlogging our debt free journey over on YouTube!

Related Post:How to Pay Off Debt Fast

How to get started using a cash envelope budgeting system

Make a budget

The first thing you should do when you start using cash, is to make a budget.

It’s important to know how much money you have coming in and going out each month.

Write down your expected income and all of your known expenses for the month (bills, payments, mortgage).

What do you have left over?

This is what you have left to categorize and place into your cash envelopes!

Choose your categories

Now that you know how much cash you have (above your fixed monthly expenses), you are ready to choose categories and make a cash budget.

You can have a few main categories and lump other things into miscellaneous, or you can be super specific.

How to use a Cash Envelope Budgeting System (1)

I’ve found that we get more specific as we improve our budgeting each month.

Some common categories that you might want a cash envelope for include:

Groceries
Restaurants
Clothing
Entertainment
Kids
Doctor visits
Fun money (personal, his & hers)
Has
Car repairs
Christmas (Save year round to avoid financial stress)
Gifts

Fill up your envelopes

At the beginning of the month, or maybe twice a month as you get your paycheck, withdraw cash and fill up your envelopes!

Don’t cheat! If the envelope runs out of cash, you are done.

Grocery budget short this month? Get creative with your meal plan and see what you can make with what’s in the pantry.

How to use a Cash Envelope Budgeting System (2)

Amazing sale going on at your favorite clothing store? If you don’t have the cash in your envelope it will just have to wait until the next one. Yes, there will be another sale!

If at first you don’t succeed, try again!

Sticking to a budget and paying cash is not easy.

The concept is easy, but it’s very difficult to completely change your behavior.

It’s hard to go from an “I deserve this” mentality to a “I want more for our future” mindset.

You will only fail if you quit! Instead of giving up, make adjustments, revisit your goals, and just make it work!

Fill out the form below to access these super cute calculator cash envelopes for free!

Frequently asked questions about the Cash Envelope Budgeting System

What about utility bills, cable, rent or mortgage payments?

These budget items are usually easier to pay online with a debit card or electronic checking account.

It’s ok to go ahead and set these up as electronic or online payments.

The cash envelope budgeting system is best for categories where you are most likely to impulse buy or get out of control with your spending.

Monthly utilities and mortgage payments are usually a fixed amount that you wouldn’t accidentally overspend on.

I love to shop online or get my Amazon Prime on…

Me too!

Whenever I make online purchases for clothing or from my “fun money” envelope, I take the cash out and set it to the side to be deposited back into the bank account or use to fill next month’s envelopes.

This way you don’t lose track and get crazy with those online orders!

Do I need all of those envelope categories?

No. Do what works for your family!

In fact, I would start out with just a few categories so you don’t get overwhelmed.

The first month that we made our envelope categories we had groceries, his & hers fun money, and miscellaneous.

We are getting more and more specific each month which makes our budget work even better!

How to use a Cash Envelope Budgeting System (3)

Do I need to carry these envelopes around with me everywhere?

No! In fact, it’s better to leave them at home until you need them, thus decreasing the temptation for impulse purchases.

We keep our envelopes in a drawer and grab what we need before heading to the store or shopping.

Am I going to overdraft my account taking out all of this cash?

This can be a difficult adjustment at first, especially if you’re starting this budgeting system to get caught up on bills that you have fallen behind on.

You may want to build up a buffer of $500-$1000 in your account before you start withdrawing your cash so you don’t risk overdraft.

Another option would be to withdraw cash for your envelopes on a weekly or semi-monthly basis.

The cash budgeting envelop system takes practice, but it will definitely change the way you manage your money and help you get closer to your goals!

P.S. Grab the free printable envelopes and more budget printables here! PLUS get weekly frugal living and finance tips and motivation to pay off debt fast!

How to use a Cash Envelope Budgeting System (4)

How to use a Cash Envelope Budgeting System (5)

FAQs

How to use a Cash Envelope Budgeting System? ›

The concept is simple: Take a few envelopes, write a specific expense category on each one — like groceries, rent or student loans — and then put the money you plan to spend on those things into the envelopes. Traditionally, people have used the envelope system on a monthly basis, using actual cash and envelopes.

Discover More ›

What are two reasons that a cash envelope system can be an effective way to budget for your wants? ›

You could see exactly what you spend

The cash envelope system is visual, making it simple to see just how much you're spending on various categories throughout each month. It could also help you understand what changes you might want to make to meet your saving goals.

How effective is the cash envelope system? ›

The envelope budgeting system can be a good fit for people who want to track their spending and need help staying within their monthly allowance. Here are some other upsides: It may help you spend less. People tend to spend less when using cash.

What is the 50 20 30 method? ›

One of the most common types of percentage-based budgets is the 50/30/20 rule. The idea is to divide your income into three categories, spending 50% on needs, 30% on wants, and 20% on savings.

Discover More ›

What is the downside to cash envelope system? ›

You may also feel unsafe carrying cash, as it's harder to track it when it's lost or stolen. It can be cumbersome to get started: Getting all the envelopes ready and allocating money into categories can take some time to set it all up, especially if you haven't created a budget before.

Learn More Now ›

What are 3 advantages of cash budget? ›

Preparing a cash budget has a number of benefits:

It can identify any times where there may be a shortage of cash. ...
It can help to regulate expenses. ...
It will clearly show where a business has more cash than expected ( surplus.

Learn More ›

How to do the money envelope challenge? ›

It works like this: Gather 100 envelopes and number them from 1 to 100. Each day, fill up one envelope with the amount of cash corresponding to the number on the envelope. You can fill up the envelopes in order or pick them at random. After you've filled up all the envelopes, you'll have a total savings of $5,050.

Find Out More ›

What is one advantage of a cash envelope system ________? ›

The cash envelope system lets you see and touch the money, so you know how much is left. One of the reasons cash envelope budgeting works is because it makes overspending difficult. However, it's important to take steps in order to make using the cash envelope system as easy as possible.

Show Me More ›

What does the envelope method work well for? ›

The envelope method works well for those who don't want to have to write down every expense. All that is needed are some envelops, a pen and some cash. On each envelope, write the category from your budget and the amount of money you can send. The money that is allocated on the envelope can be for any timeframe.

View Details ›

What is the best way to budget? ›

Try the 50/30/20 rule as a simple budgeting framework. Allow up to 50% of your income for needs, including debt minimums. Leave 30% of your income for wants. Commit 20% of your income to savings and debt repayment beyond minimums.

Learn More Now ›

Is $1,000 a month enough to live on after bills? ›

Bottom Line. Living on $1,000 per month is a challenge. From the high costs of housing, transportation and food, plus trying to keep your bills to a minimum, it would be difficult for anyone living alone to make this work. But with some creativity, roommates and strategy, you might be able to pull it off.

Find Out More ›

How much should I budget for a 60k salary? ›

On a $60,000 salary, which roughly translates to $50,000 after taxes (depending on your location and tax rates), 60% would be about $30,000 per year, or $2,500 per month. Savings (20%): This portion should be allocated towards your savings, investments, emergency funds, or debt repayment.

Discover More ›

How to budget $5,000 a month? ›

Consider an individual who takes home $5,000 a month. Applying the 50/30/20 rule would give them a monthly budget of: 50% for mandatory expenses = $2,500. 20% to savings and debt repayment = $1,000.

Show Me More ›

What is one potential downside of using a cash envelope budget? ›

One potential downside of using a cash envelope budget is the inconvenience of having to physically carry and manage cash. This can be especially cumbersome for those who prefer to use credit or debit cards for their purchases. Additionally, carrying a significant amount of cash can be a security risk.

Explore More ›

How does a cash budget work? ›

A cash budget is a company's estimation of cash inflows and outflows over a specific period of time, which can be weekly, monthly, quarterly, or annually. A company will use a cash budget to determine whether it has sufficient cash to continue operating over the given time frame.

Show Me More ›

What is a cash budget and how is it used? ›

A cash budget is an estimation of cash inflows and outflows over a specific period of time. Cash budgets are useful in that they can be produced for long-term and short-term goals, sometimes for as little as one week.

Get More Info Here ›