Everything You Need To Know To Start The Cash Envelope System

cash envelope system

If you feel like you are drowning in debt and looking for a way to manage your money the cash envelope system is where it’s at!  If you’ve heard of this money management system before I bet you are curious how it works and if it’s possible to use it without driving yourself nuts.

Let me ease your mind and tell you that it really is fantastic and it does work!  

The cash envelope system is something that you could easily implement today if you really wanted to.

By managing your money the old fashion way….using cash you are more likely to be successful with budgeting your money.

We used a cash budget when the place I was employed went bankrupt leaving me jobless. Converting our finances to a cash budget was the easiest thing we could do to manage our money and guarantee we knew where each dollar was being spent.

What Is The Cash Envelope System?

The cash envelope system was made popular by Dave Ramsey. The system works by forcing you to use cash for different categories of your budget such as groceries, gas, food, and entertainment.  

After receiving your paycheck you budget how much money should go into each category, you simply take out cash and put it into the corresponding envelope. When the money’s gone it’s gone!

Why A Cash Budget?

A cash budget is the only way you can 100% guarantee you will not overspend.  Yes, of course, you can technically steal from other envelopes but as you deplete the funds in that envelope you are left with nothing.

It doesn’t take long for you to learn that you have to stay within your budget. At some point, something has to give if you aren’t being honest with your cash budget.  

Let’s say you only have $100 remaining in your envelope for groceries and you know you aren’t getting paid for another week using cash will force you to think twice about what you are buying.

Why You Should Use A Cash Budget?

The envelope budgeting system is tangible, you are able to focus on the use of good ole cash that is coming in and out your envelopes to control your spending.  When you run out, your cash is gone.

I know I’m going to get some naysayers who are thinking “Um excuse me…. cash only?  I can’t have a cash-only budget because I spend it too quickly.”

But here’s what I have to say to that “You haven’t even given it a shot!” One of the main reasons you’ll fail with this system is if you go at it the wrong way. You have to plan. You must track what you are spending your money on and assign it a task within your budget.

Let’s say you get paid 2 times a month and have a total take home of $2,000. You need to decide what to do with that $2,000.  Perhaps $1,000 will go into the bank to pay for online bills (mortgage, car payment) and the remaining $1,000 will be separated into categories to pay your everyday expenses.

 If you don’t make a plan for spending this money then, of course, you’ll spend it on all the wrong things.

For your cash budget to work you will need to categorize your expenses and decide how much you will spend on each expense (groceries, dining out, random spending, clothing).  Once you have decided you withdrawal that amount of money and put that cash in its envelope and label it

By knowing that you have a grocery budget of $100 a week it makes it much easier to control your spending.

There’s no point in buying the most elaborate and expensive dinner the first night if you know you are going to be eating ramen noodles the rest of the week because you have drained the money in your envelope.

Categories For Your Cash Envelope System

Getting started with a cash budget is really pretty easy, you can literally start today. You want to begin by taking a look at your budget and decide how to divide it among the different budget categories that make sense for you.  

Here are some ideas to consider:

  • Groceries
  • Entertainment or Dining out
  • Clothing
  • Personal care (beauty/hair)
  • Allowance
  • Household items

Tip: Look back at your bank statements to get an idea of how much you have been spending in these areas.

We will cover the “other bills” in your life such as mortgage, insurance etc. in a bit because paying these with cash doesn’t work so easily.

Fuel And Your Cash Budget

You may be wondering why I didn’t account for fuel in the categories above. The reason for this is because spending money at the gas station is not an area where many people have an issue with overspending.

Most of us fill our tanks full and head about our daily duties. I use a card when filling up my tank because it’s much more convenient than going into the store to pay cash.  

I can’t imagine switching to a cash system to pay for fuel will provide many long-term benefits and the hassle is significant, so you choose!

Allowance? On A Cash Budget

Yep!  I allowed for a bit of money for fun in your budget.  Having a budget isn’t suppose to be miserable.

I don’t want you to change all of your life habits by switching to the cash envelope system if you were able to enjoy an evening out previously then you should still enjoy this now.

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    How To Make Money Envelopes Work

    It’s much easier to understand how this whole thing works if I give you a couple of examples so you can see it in action:

    But first, there are a couple of things you need to decide.  Do you want to fill your envelopes with cash every week or every payday?  Do you have a list of all of your monthly expenses?

    I’m going to give you a step by step example of how I made the cash envelope system work for us.

    I budget our system for getting paid once a month.  If you choose to do a weekly method you are going to need to list your expenses for every single week.  

    I mentioned above that there are a handful of expenses that are best paid via auto-pay. I imagine you can agree with this also. Items such as car payments, mortgage, and cell phone bills are expenses that I would NOT try to work into a cash budget.

    For these recurring monthly bills, I leave money in my checking account to pay these with an electronic transfer.  I refer to bills that that are due the same day every month for the same amount as “fixed bills.”

    For everything else that is not a fixed bill, you will need to pull out cash for your envelope system.

    Remember, this is simply what has worked best for us and our finances don’t get too caught up in the logistics because it’s super easy to switch it up the following month if you decide to budget bi-weekly.


    Lets put this into action to make it easy for you to understand.  Let’s say you bring home $3,000 per month.

    You’ve pulled out your budget and have your “fixed” expenses accounted for with auto-pay so we aren’t going to worry about them.

    Here’s an example of what you could decide to do with your cash budget


    Groceries: $500
    Beauty: $50
    Clothing: $100
    Entertainment: $100
    Dining out: $50

    Total Cash Needed: $800

    If you are a person that gets paid every 2 weeks you just need to half the amount in order to make your cash budget work for your paycheck.


    Groceries: $250
    Beauty: $25
    Clothing: $50
    Entertainment: $50
    Dining out: $25

    Total Cash Needed: $400

    Fill Your Cash Envelopes

    Once you have withdrawn the cash split the amounts and begin filling each of your cash envelopes.

    To make things quicker and more efficient I found that the easiest way to withdraw the cash was to go inside the bank so that I could get the exact cash I needed for each envelope.

     I have a template I’ve used that I hand to the teller each time to show them the break down of cash I need:

    6 $50 bills
    20 $20 bills
    8 $10 bills
    4-$5 bills

    Figure out what works for you and go with it.  Don’t make this system complicated because it really is so simple!  When I first started the cash envelope system I used plain white envelopes from the dollar store and wrote the category on the outside, you don’t have to be fancy.

    As time went on I found it was easier for us if I color coded the envelopes.  I got tired of digging in my purse trying to find my “grocery” envelope when standing in line at the grocery store.  Nobodys got time for that!

    If you think you would like to color code your envelopes and can’t afford the fancy designer stuff use some construction paper and make your own.

    Printable Cash Envelope Template

    If you are looking to make your own envelopes using your own paper here is a great place to print out envelope templates.  

    Using The Cash Budget System

    Now that you have divided up your cash and filled your envelopes it’s time to get spending. To be successful at using the cash system you are going to have to stick to the amount you have allotted yourself in each envelope.

    Respect the rules you set for yourself!  

    This system will not work if you aren’t willing to make it work. Once your money has run out that’s it!  

    If you find that you are struggling and have the thought to “cheat” and just “borrow” a bit from another envelope, keep in mind this will harm your budgeting system.

    You may need to take some security measures and leave all other envelopes at home when you have an inkling you may want to cheat and pull from another envelope.

    I can give you all the “how to’s” in the world but it really comes down to you and your determination.  

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      Why Cash Envelopes Work So Well

      This system works so well because it is simple and tangible. When you are purchasing everything with credit it becomes so easy to swipe your card without even thinking about the money you are spending.  

      When using cash only you are physically dealing with the money which somehow changes your money mindset.

      Cash Envelope System Is Possible, Even If You Shop Online

      Yes!  You can make the cash envelope system work even if you purchase things online. 

      However, please realize that this is the advanced version of the envelope system because you need a bit more discipline since you are dealing with cold hard cash.

      Here’s how to make the cash system work for you onliners.  Instead of pulling out the cash from your bank for online purchases just keep it in there.  

      Write on the outside of the envelope your allowed amount say $100 and each time you make an online purchase you subtract that amount from your total amount.  

      It’s pretty similar to balancing a checkbook.  But again, be strong using this system and stick with using your debit card NO credit cards for purchases.

      Final Thoughts

      There you have it all of my favorite tips and tricks on how to use the cash envelope system.  IF you are looking for additional ways to control your budget.  I have a super helpful budgeting article you can check out here.

      If you are struggling with debt and looking for a way to pay down debt you should definitely read this.  By using the debt snowball method we were able to eliminate all of our debt! 


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