How To Start The Cash Envelope System & Save More Money
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How To Start The Cash Envelope System & Save More Money

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If you are finding it hard to stick to your budget, you may need a tangible system that can work for you. If you are looking for a new budgeting system, try out the cash envelope system.

The system also forces you to come up with your expenses and make a budget you can stick to. 

Here’s what you need to know about the cash envelope system:

What is the cash envelope system?

The cash envelope system is a simple way of setting up your budget and dividing them into certain categories. This system has been around for a while, but it has been made famous by Dave Ramsey.

The main idea of the cash envelope system, as taken from its name, is that you are taking actual cash and dividing it up into the categories for budgeting.

Different amounts are then placed into separate envelopes that you will then use later for when you would need them. It is a great tool for you to control your spending, stay within your budget, and not overspend.

There are lots of envelopes out there that are made specifically for this cash envelope system (these ones are especially cute!) so you can buy those if you want. Although, this isn’t a requirement since you can use any envelope you have or even make your own if you feel like being creative.

You can use color coding or labels so that you can distinguish one envelope from the other quickly. If you plan on creating your own envelopes, you can also download envelope templates online and just print them out.

Cash envelope system categories

Your cash envelope system budget categories will vary per month and so you will need to determine all of the expenses that you are planning to pay using cash.

social media graphic with cash envelope system categories and text the beginners guide to cash envelope system

Some examples of these categories are:

  • groceries,
  • clothing,
  • entertainment,
  • eating out,
  • kids things,
  • gifts,
  • fuel,
  • household items,
  • health & beauty.

It’s all up to you to determine these budget categories that you have. You can take a look at your bank statements and see what items have you been spending on and how much they are so you can determine how much you would need for that certain category or expense.

Related: How To Determine Your Household Budget Percentages

How to use the envelope system

Create your budget

Come up with your budget and how much you want to set aside per category each month. Add all of these up and this will be the amount you would be withdrawing from your bank account for that one month period.

Related: How To Make A Budget + Free Printable Budget Template

Withdrawing your cash and set it aside

After every payday, you can get your money and put your budgeted amount of cash inside each of the envelopes. It is important that you do this right away so that you don’t forget and use the money for something else.

The sooner you can set aside your budget, the better. If you get paid once a month, you will be getting all of the money and putting it in the designated cash envelopes.

If you are paid twice a month, you will divide your total amount needed per month by two and this will be the amount you will withdraw or get from your paycheck every time.

Organize your envelopes

Since there is a lot of cash involved here, it is important that you organize them properly into their assigned envelopes. These envelopes could be in different colors to specify the categories (these ones work great), or you can put labels on them.

Colored envelopes are beneficial since you can easily spot them and pull them out when you need to. You also need a container or for all those envelopes to store them together and keep them in one place since you won’t be bringing all of your envelopes in your wallet all the time.

For the envelopes that you won’t use, keep them at home in the container, at a safe place.

Cash envelope wallet

When you are going to go shopping, you need to have a wallet or bag that can carry your cash envelopes. It is important that they are well organized so that you don’t lose them or mix them together.

This is why investing in a good cash envelope wallet is worth it. They are made specifically for the cash envelope system so everything is arranged in order so all you would have to do is take the money and not worry about how they are arranged and kept in your wallet or bag.

Cash envelope wallets also come in lots of different styles, designs, and colors so you can surely find one that suits you.

Spending your cash

When you have spent all the cash you have designated for one envelope, this means you cannot spend any more until the next budget period. 

Don’t be tempted to use your card or withdraw more money or borrow cash from the other envelopes. Stick to that budgeted cash in that envelope! This might be hard to do at first, but later on, you will get used to this system and learn how to stay within your budget.

Extra cash

If you end up having leftover cash (way to go!), you can either set it aside to pay your debts if you have any or put it in your savings. You can also take a little of that extra money and reward yourself.

Sometimes this is important to keep you motivated and to also find that balance between discipline and enjoying your hard work.

How to start the envelope system with no savings

Some may wonder how to start the envelope system with no savings. The good thing about the cash envelope system is that you don’t need to have cash savings to start this Social media graphic with envelopes and text how to use the cash envelope system tips to start spending lessmethod.

After you have come up with your budget and set up your categories, you can now withdraw the amounts from your bank account and put them in your designated envelopes.

You can get the cash directly from your paycheck, depending on how often in a month you get paid.

If you get paid once a month, you would get put all of your money in the envelopes at once, while if you get paid twice a month, you will withdraw the cash twice.  

Other cash envelope tips

Half cash half digital

Sometimes, an entirely cash-based system won’t work for your family. This is when you can do a half cash and half digital system. After you have created your budget, you can then determine which categories you will use cash for and which ones you will use a card. 

If you are really trying to control your spending, debit cards are better. If you are okay with your expenses and spending at the moment, you can use a credit card – just make sure you pay it on time every month to avoid high interests.

Online expenses

If you pay some of your bills and expenses online, you can still do so but keep track of it through the cash envelope system method. You would just need to write down these expenses on the envelopes, and make sure you don’t go over the budget for the categories.

It’s the same concept only you can’t see the actual money. It’s more of a tracking method to make sure you are within your budget. It would also take a lot of discipline on your part to not only monitor it, but make sure that you really stick to that budget – as if there was actually cash in that envelope that is slowly disappearing.


In some cases, you might have emergency expenses that you haven’t budgeted for. When this happens, it’s important to talk it out with your partner or come up with a decision together on how you should deal with it.

It is important to do this so that you will also be held accountable and everyone is aware that you would need to revise your budget because of this certain expense. If you are single and are doing all the budgeting yourself, it is also a good idea to get an accountability buddy.

Ask for help from a friend, family member, co-worker, or anyone that can also hold you accountable for your budget and help you to achieve your financial goals.

Only take the cash you need

If you are going out shopping and you more or less know how much you will spend, it is best to only take that amount (or close to it) and not the whole envelope. This helps you to not take a lot out of that envelope, especially if other people are also getting money from that envelope.

Change it up

Just because you have set up your categories, it doesn’t mean you can’t change them later on. You can always switch it up, take out some categories, add more, depending on what you need and what you think works and doesn’t work for you.

Remember that you are continuously improving and learning so don’t hesitate to make the proper changes to benefit your budget.

Pros of the cash envelope system

Encourages discipline

The cash envelope system promotes self-control when it comes to your budget and expenses. As you practice discipline with this system, you will improve yourself and also help you to become disciplined in other areas of your life.

Limit overspending

If you literally don’t have any cash left in your envelope, then you won’t be able to spend more on things that weren’t a part of your budget. You won’t be tempted to just “swipe” or charge it to a card since you won’t have any more physical cash available.

You are held accountable

Because you can physically see your cash or budget, you are responsible for it and you are taking charge of your actual money to use it on the right things that have already been budgeted and planned for beforehand.

Helps you reach your financial goals

We all have different goals and objectives when it comes to our finances, but the most common issue most people have is how to stick to their budget.

With this system, you have a bigger chance of staying within your budget, and in the long run, this will help you to achieve your financial goals.

Tangible money

Because you can actually see and touch your cash, you will be more mindful of your money and budget. When you can actually see with your own eyes that your money is getting smaller and smaller, then there is a tendency to not spend on other things.

You have a constant reminder of what you have left and that you have to stay within your budget as you have planned.

No overdraft charges and other fees

Because you are using cash, you won’t overdraft and get charged a big amount. You also don’t need to spend on other bank fees and charges that can sometimes be the result of doing your transactions online.

No missed payments

If you are paying your bills and expenses through cash, then there is a lesser chance for you to miss out on your payments since you would always have to do them up front or on the spot. You don’t need to remember anything or keep track of what you spent for that month since you have already settled them using actual cash.

Cons of the cash envelope system

Woman reaching for cash in purple wallet

Getting actual cash from the bank or atm

Because you need the physical cash, you would have to retrieve it in some way, either through the bank or through an atm. This is an extra step you would need to do when you want to use the cash envelope system as compared to a digital one.

No credit card rewards

Because you won’t be using your credit card much, you won’t be able to get some card rewards, points, and other programs that they might be offering.

Learning curve

If you haven’t used this system before or the concept is completely new to you, it may take a bit of time for you to get used to it and learn how to use and allocate cash for your purchases and expenses.

If you have had a hard time sticking to a budget, or need to create a budget system that will work for you, the cash envelope system is a simple and effective way for you to achieve your financial goals. This is because the system makes you aware of what you are spending on and you will be more likely to stay within your budget.

With a little organization and discipline, the cash envelope system could be your ticket to achieving financial freedom.

You may also like these money saving tips:

Social media graphic with envelopes and text how to use the cash envelope system tips to start spending less








McKinzie Bean
McKinzie is a mom of two, and a personal finance enthusiast. She loves teaching other moms how to save money, make money, and take control of their financial situation. She has started five profitable businesses and in college, she double-majored in Financial Planning and Psychology. You may have seen her in publications like Forbes, The US Chamber of Commerce, Yahoo Finance,, The Penny Hoarder, & more.

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