cash envelope system

Everything You Need To Know To Start The Cash Envelope System (And Be Successful)

If you feel like you’re drowning in debt and looking for a way to manage your money the cash envelope system is where it’s at! These simple envelope budgets are really easy to start. We’ll even cover why this particular method is the easiest cash envelope system for beginners.

If you’ve heard of this money management system before I bet you’re curious how it works and if it’s easy to use.

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. It doesn’t have to be complicated or time consuming.

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 a couple years ago. Converting our finances to a cash budget was the easiest thing we could do to manage our money and guarantee we knew where every dollar was being spent.

The cash envelope system works excellent with a zero-based budget. If you aren’t familiar with a zero-based budget, check out this step-by-step budgeting guide.

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, and then 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 those other envelopes 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.

Studies have shown that you spend 15-20% less with cash over a card. There’s a psychological effect involved when you are using cash rather than your card.

cash envelope system

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 have 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 kind of 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.


Do I Have To Use Cash For Everything?

No, you don’t have to use cash for everything. Overall there’s not a huge benefit to paying your monthly bills with cash. Paying large payments with cash can become cumbersome and I really don’t see a bonus to doing it this way.

I’ll cover this in further detail in a bit. But my personal choice for paying monthly bills is to use online bill pay and use the cash envelope system for day to day purchases.

Example of Cash System Mingled With Online Bill Pay

Let’s say you get paid 2 times a month and have a take home of $1,000 every two weeks. You need to decide what to do with that $1,000.  Perhaps 500 will go into the bank to pay for online bills (mortgage, car payment, utilities) and the remaining $500 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 on this, 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 $50 a week it makes it much easier to control your spending.

There’s no point in buying the most expensive dinner the first night you receive your paycheck if you know you are going to be eating ramen noodles the rest of the week.

By using the cash system it allows you to actually see your finances, causing you to have a higher awareness of what’s going on.

cash envelope system

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 your money among the different budget categories that make sense for you.  

Here’s 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’ll cover the “other bills” in your life such as mortgage, insurance, utilities 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 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 don’t imagine that switching to a cash system to pay for fuel will provide many long-term benefits and I don’t want the hassle. You choose what you think will work best for you!

Allowance? On A Cash Budget

Yep!  I allowed for a bit of fun money 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 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 budgeted 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 looked at 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

    cash envelope system

    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’re 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’ve 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. I’ll repeat again 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’s simple and tangible. When you’re purchasing everything with credit it becomes so easy to swipe your card without even thinking about the money you’re 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.

      What Do I Do When I’m Out Of Cash In An Envelope?

      As we all know life happens. Things will get in our way that cause us to have minor problems here and there.

      I know there’ll be a time (because it happened to me) that you spend the last dollar in your envelope but you REALLY REALLY need to buy something you forgot.

      In this case you can adjust your budget and take it from another category. WARNING — Do not make this a habit! You get ONE “get out of jail free” card so make sure you use it wisely ;)!

      The main take home is to not use credit to cover your expense. So if you have to move money around in the envelopes to make things work, its ok just this ONE TIME ;)!

      What Should I Do With Money Leftover At The End Of The Month?

      A common question I get asked is what do I do with the money that is left over in the envelopes at the end of the month? I love this question! This means that you are on the right track with managing your money!

      I think you may like this answer. You can do whatever you want with the leftover money! You can move it to another category. You can leave it in the envelope and have extra for the next month. You can save it in my favorite high yield savings account.

      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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