A Simple Guide to the Cash Envelope System

Cash envelope system guide

Written by my sister Carolee, this is a guide that will teach you everything you need to know about the cash envelope system. This post covers the pros of using the system and gives you helpful, actionable pointers to get started. There are also some helpful tips on how to implement the system and some suggested cash envelope categories. Take it away Carolee!

Why I Love the Cash Envelope System

It’s concrete

None of this opening up my budgeting software, looking up the month, finding the category, and seeing how much $ is left for the month. I never did that anyway.

Now, I just have to look in the envelope and I know exactly how much we are allowed to spend on something. If there’s not enough, then it will have to wait. End of story.

Peace of mind

I don’t have to worry or wonder if I’m going to overdraw or exceed my credit limit.

It helps me save up for things

Some months you won’t use everything in your envelope, and that’s great, because you may need more in other months. I notice this happens especially often in the “Holidays and gifts” category.

In my family, there is only one birthday in February and March, but there are 8 birthdays between April and May, plus Easter and Mother’s day. So I can just spend a little from that envelope for gifts in February and March, and save up the rest for the busier months. Or, I can plan ahead and buy some gifts for April and May birthdays in February and March (Plan ahead? What’s that?).

The envelope budget can also help you save up for specific things. For example, you could have a “home decor” envelope to save up for a larger item instead of putting “extra” money in your savings account where you might accidentally spend it.

Envelope Budget System

I spend one day a month on the budget and that’s all

That one day per month is spent filling my cash envelopes and then after that, all my envelope categories are budgeted for the month.

Then, once or twice a week, I check my bank accounts online to keep up to date on my bills and any debit card transactions. This also means I spend SO much less time working on the checkbook because now there are fewer transactions to record.

It’s been great for my marriage

My husband and I have a “spending” category for each of us, so we each get our very own spending money every month to do with as we please.

I can save mine up for something I really want, I can go out to lunch with my sisters, I can buy myself a milkshake, or whatever else and with NO GUILT! As for my man, he can now go to town at the comic book store but when his spending money is gone, it’s gone!

We are both a bit more discretionary with our “own” money now, and we don’t have the “how much did you pay for that?!” conversations anymore! It is awesome.

Cash envelope system of budgeting

Getting Started with an Envelope Budget

Getting started with the cash envelope system is going to take you a bit of time, but once you have the system in place it’s smooth sailing. Here are some tips to help you get set up:

  1. Use your current budget – If you already have a budget set up and it’s working, you can simply transfer it into your envelope budget. If you don’t already have a budget, learn how to set one up.
  2. Write down your cash categories and how much cash you’ll need for each one for a month – Note that you can still pay your monthly bills from your checking account (i.e.: utility bills, rent, debt, insurance, medical bills, piano lessons, etc.).
  3. Be sure to budget in some fun (like a family recreation envelope, date night, and/or spending money!) – You are much more likely to stick to a budget and this system if there is some money in there for you to do some fun things with.
  4. Pull out some plain old regular envelopesFor each of your cash envelope categories, you’ll need an envelope. Write a category name on the front of each one.
  5. Head to the bank – Withdraw the cash for the month and distribute it into your envelopes.

Cash Envelope Budgeting Tips

Distribute money if needed

For example, if you have someone in your house who doesn’t usually do the grocery shopping, give them a bit of money from the grocery envelope each month anyway. That way they can help you out when you call and ask them to grab a gallon of milk on the way home, etc.

Figure out how many of each denomination you will need

For instance, I like to have plenty of 1 and 5 dollar bills for the “date night” envelope, so I’ll have exactly what I need for the babysitter or the tip at the restaurant. So I will make columns on scratch paper, and figure out how many 50’s, 20’s, 10’s, 5’s, and 1’s I want.

When I go to the bank, I tell them (or have it written down for them) exactly what bills I want for my cash envelopes. I used to feel self-conscious about withdrawing so much cash and asking for “13 one’s” but, I got over it, and the bank teller’s don’t usually give me weird looks, either.

Start out with actual envelopes

Try it out for at least 3 months. Keep the envelopes in your purse, and just replace them if they get ragged. Then, if you decide you love this system, you can get yourself something a bit sturdier to keep your cash in.

Some websites like Dave Ramsey’s have “cash envelope system” wallets you can buy, and on Amazon, you can find some coupon organizers (that you can use for cash instead) that fit in your purse. Just make sure whatever you buy has enough compartments for each of your categories.

After using the envelopes for over a year, I just finally got an accordion style coupon organizer that I really like so far!

Make a Christmas envelope

Determine an amount you think will be reasonable to spend on Christmas—shopping, baking, parties, decorations, etc. Divide that number by 12 (or if you are starting in June, divide that number by 7, etc.) and make a Christmas envelope that you put that amount in each month. (If you can’t afford the amount that you came up with, it’s time to trim down on Christmas.)

This envelope is a life-saver because once you are ready to start your Christmas shopping and decorating, you shouldn’t have to use your credit cards at all, just keep that Christmas cash envelope with you.

Envelope budget system

Envelope Categories

Here are some ideas to get you started with your envelopes:

  • Children (clothes, school expenses/fees, etc) – I still pay for their piano lessons, swim lessons, preschool, and other such activities from the checking account and this is a separate budget category.
  • Personal Care (haircuts, etc!)
  • Diapers
  • House and Yard Maintenance and repair
  • Groceries
  • Family eat out – This is for those nights when we just have to buy a pizza (although, if you have some freezer meals, you can pull one of those out instead of buying pizza on those crazy days) or for saving up and taking the whole family out to dinner every once in a while.
  • Date Night
  • Clothing – This one is for my husband and I—and it’s for clothing NEEDS, not wants. This is so we don’t have to use our own “spending money” envelope when we need new underwear or a new pair of athletic shoes, etc. It is NOT for those new stilettos you can’t live without.
  • Pets
  • Holidays/birthdays/gifts
  • Spending
  • Misc

Common Objections to the Cash Envelope System

“I don’t want to carry that much cash around—what if I get mugged?”

Ok, I suppose that is a possibility, but no more a possibility then when you carried 10 credit cards, right? Unless you go around with a big sign on your purse that you have a whole bunch of cash in there, no one will know that you aren’t just carrying around plastic like everyone else. Just be smart with your purse, like you should be anyway!

Also, you don’t really have to carry all your envelopes with you at once. If you’re going grocery shopping, take your grocery envelope with you. If you’re getting a haircut, take that envelope, etc.

“If I have cash, I just spend it.”

If you know that’s all you get for the whole month, don’t you think you’ll be a little more discretionary with it? If it’s a consistent problem, it might also be that you just didn’t give that budget category enough $ and maybe it’s time to adjust some things in your budget.

“I just can’t imagine not using my credit card.”

Sounds like it’s time for you to read Dave Ramsey’s Total Money Makeover. He will help you get over the social expectations to use plastic.

Give the Cash Envelope System a Try!

It may sound hard, but trust me, it’s great once you get started! You’ve just got to commit to trying it for at least 3 months to give it a fair chance. It will be a big adjustment and take some time to work out the kinks, but you can do it!

If you feel like you need to get a better handle on the money that seems to keep leaving your bank account without your permission, this is the way to go. Good luck!

A simple guide to the cash envelope system


  • We’ve been on a cash system for 2 years now after doing Dave Ramsey’s Financial Peace University. I LOVE IT! Granted there are some weeks when I “rob peter to pay paul” but I find I am much more relaxed about spending money on discretionary things if I know the money was intended for that in the first place! And neither my husband or I can remember the last time we had a heated “discussion” about finances because it’s the envelope that says yes or no, not one of us!
    It may seem scary at first but I wholeheartedly suggest it! You can do it!!!

  • we have been using the envelope system for 15 years . Instead of doing it monthly we do it weekly. What we do is this first take a sheet of paper and make a list of all your bills divide each monthly bill by 4 ( the number of weeks in a month) yeah I know a few months have 5 but that’s ok that just means some extra cash in your envelope. Don’t forget those yearly bills like property taxes and house insurance ( I divide them by 52 ) And then there are those car insurance bills we pay them every 6 months so we divide them by 26 . Then next to the bill ( example water bill 20.00)
    put $5.00 (that’s the amount you put back weekly. That’s it when the bill comes due you have the money to pay it. Before you know it you’ll have so much cash . When doing your envelope system don’t forget to pay yourself make sure your put some money in a savings account every week if you don’t have much start small MAKE IT A HABBITT ! It’s one habit you won’t want to stop.I have two sons and they have watched us do this over the years and it has taught them how to manage their money. As you can tell I am passionate about this that’s because I know it works.

  • We LOVE LOVE LOVE the envelope system. Since we get paid every other Friday there are two months a year that we have three paydays. We still put the same amount of money in each envelope even on the extra months so there is always extra. When the power bill sky rockets, or if there is an unexpected bill that pops up we are prepared.

    This system has also helped us save up for vacations faster than any other method we have tried. There is nothing like going on a vacation and really being able to relax because we know we can afford to go.

  • We, too, love this system! We have stuck to the envelope system for just 10 months now, but have been able to pay off close to $5000 in debt by being so consistent with our cash system! This summer we went on vacation to the beach with our three kids and for the first time EVER we were able to pay with cash only and came home with money leftover! It is such an amazing feeling to be in control of where your money goes and knowing that it is making a difference! I, too, highly recommend this for anyone, but especially those paying off debt from college, cars, etc!

  • Love this system and I love Dave Ramsey!! If you are honest with it you can really stick with your budget and get to your goals!

  • You should all look into mvelopes.com. It is the perfect online money management solution that implements Dave Ramsey’s ideology.

  • I dont use the envelope system, but I do pay myself once a month. I deduct a certain amount of money in my checkbook ledger and keep track of it on a separate paper. Its like writing myself a check every month. I was able to save enough money doing this to replace all the windows and sliding glass doors in my house without having to get a loan or refi. Its a nice way to save money and have it handy (via check or ATM) without having the cold cash in your home. Great idea no matter how you do it!!!!!

  • I always wanted to use the envelope system but couldn’t get past having to use cash all the time. Finally found EEBA http://www.eebacanhelp.com and it is the same concept, just virtual envelopes. It has helped SO much to keep us on track. We also calculated our regular monthly bills (Rent, electric, Auto insurance, etc) that are mostly fixed amounts & non-negotiables and opened a separate checking account to pay these out of. We figured out what we needed to have each month for these and it is auto deducted from my bi-weekly paycheck and goes right into this account. We are a little behind starting out but we will eventually have each of those bills auto debited from that account so we don’t have to worry about them at all. Other money for misc, tolls/gas/auto, childcare, groceries, cable/phone, giving are in another checking account but these are things that the amount can fluctuate or that we have more control over the amount spent. Free app too for the basic version or you can pay a very small amount for more features (I think the most expensive is $8/mth). It has really helped us to see where we are at each week.

  • I hardly ever use cash anymore. We prefer credit cards. We pay off our cards in full each month. Plus we are building credit and earning rewards points that help us pay off our cards.

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