Quick Guide: The Cash Envelope System

I think just about everyone I know has struggled with their finances at some point or another in their life. There are times when it seems you just can’t get ahead due to some sort of unexpected expense or maybe a bad decision or maybe for some other reason out of your control completely.


If you have ever had trouble getting your spending under control you may want to try the cash envelope method of keeping tabs on your finances.


This system has worked for tons of people as a way to not only budget more effectively but really take control of spending. It is restrictive and takes discipline but is a great way to be mindful of your current spending habits to see where you really spend your money, how much you are spending and forces you to really pull in the reigns.


It’s a great system if you are really trying to pay off debt or save money for something major in your life, like retirement or buying a home or any other reason you may have for saving money.


The Premise:

When you get your pay, you deposit it into your bank account and then withdraw the cash. You divide the cash into separate categories based on your expenses. The contents of each envelope is what your budget is for that pay period/month/etc.



First things first – Create a budget:

Before you head to the bank, it’s imperative that you sit and create a budget (if you don’t already have one). You will need to write down your current expenses and determine a budget for your spending. This gives you an idea of how much money you need for each of your envelopes.

Some categories you might need may include:
• Groceries
• Car/Gas
• Kids
• Clothing
• Entertainment
• Gifts
• Personal
(any other categories you may need)

Keep in mind that you are hoping to restrict your current spending so if you are spending a lot in one area, you may wish to trim the amount of money for that category. Since these categories are variable, meaning they can fluctuate from month to month, it’s not uncommon for people to overspend. Of course, it can also mean you can trim down certain areas if needed as well. For instance, we discovered we were spending $300/month on dining out, so we restricted it to $100/month. That other $200 can be saved or divided  among other categories where it may be needed.


Secondly – Set a Goal

The next thing to do is to set a goal to work towards with this system. This is the thing that motivates you to limit your spending. For instance, my husband and I wanted to pay off a large debt we had. That was our motivation for restricting our spending and sticking to the envelope system. If you have a set goal in mind, it will help you to want to stay on track. Let me tell you, seeing your debt shrink is a huge motivation to keep going.


If your goal is to save a certain amount of money for say a home renovation or other purpose, then seeing the account accumulate will really motivate you to keep going.


Thirdly – Set up your envelopes

You can use the free printable cash envelopes that I created or you can always use your own. I created these pretty envelopes so you can keep track of each transaction with the handy table right on the envelope. This makes it easy to see where your spending stands at any given moment.

Once you get paid, withdraw the money you will need for your envelopes and place the cash in each corresponding one. That is your budgeted allowance for each category and what you have determined to spend. So if your car/gas envelope is $150, that’s what you put in the envelope. When you go to the gas station to fill up, you use the money in that envelope to pay for it. Then record your spending on the envelope to keep track of what you’ve spent.

At the end of the pay period/month/etc money left over in your envelopes can either be rolled over to the next month or in our case – put directly on the debt we were trying to pay off. It got to a point where we were really trying to always have money left over, just so we could have the satisfaction of putting it on the debt. Suddenly we were actually living well below our means and it felt really good.

The one thing I have to say about the system is that I wouldn’t personally carry all my envelopes with me during the day. Let’s face it, you could be carrying a LOT of money at any given moment. So what I would do is keep them at home and only take with me the money I know I’d need for that day. For instance, if I know I will have to get gas on my way home, I would take some of my gas money with me, say $50 and leave the rest home. I’d do the same for my groceries category as well. Carrying hundreds of dollars around with me would make me way too nervous.



As I mentioned earlier, the whole system will take some trial and error as well as discipline. It can be very tempting to sneak money from one category to another if needed. For instance, let’s say a night out with friends caused you to use up all of your “entertainment” money for the month. It would be so tempting to take it from another envelope to top it up. But what you will find is that it may leave you short in that category now. The point is that you want to try to live within your set budget and take control of spending. We discovered that our budget took some tweaking in the beginning. We found our “personal” categories (one for each of us) didn’t need as much as we originally thought, and our “grocery” category needed more. As you do it more you will see how much is reasonable for your expenses and can budget more effectively.


Reward yourself

It’s important that you do reward yourself once in a while for your progress but keep in mind it doesn’t need to be expensive – let’s not lose track of why you’re doing this after all. It’s not hard to find alternative and more cost effective ways of doing things. Rather than a night out with friends at a restaurant, opt to have couples come to your place for a potluck where everyone can bring something. We did this with friends and had everyone bring an appetizer/finger food. We had plenty of things to eat and had a great evening with very little expense for everyone involved. A night that could have easily been $100 to $150 dining out, ended up costing us only about $30.
We were still able to have a fantastic evening, and it didn’t break the bank (or our system) to do it.


Finding alternative things to do

We found all kinds of things to do that cost either nothing at all, or very little. A walk in a local city park can be a great activity that is totally free, or having an evening out with a friend over a cup of coffee at a local shop for a few dollars, or walking along a waterfront or local hiking trail costs nothing. Some of our most fun moments were doing things that didn’t cost anything… like enjoying a nearby beach watching the sun set or strolling around downtown on a nice evening just people watching.

Rather than a movie at the theatre, we would opt for a Netflix movie/series and have snacks at home. It saved us a ton of money and was nice to be able to snuggle on the sofa instead of a crowded theatre. Movie passes and snacks can cost $50 or more. Our at-home movie night cost us only about $5 in snacks.

Related posts:

6 Easy Ways to Make Money Online

8 Ways to Save Money So You Can Travel More


This system worked really well for us, but isn’t something we’ve felt the need to do on a permanent basis. We do work from a budget that we’ve set out and so far this keeps our spending on track.


Think you might like to try this system? You can grab my FREE printable cash envelopes here and give this method a try. I really recommend doing it for at least 2 months to see how you do with it. Remember not to get discouraged because it can be quite an adjustment until you get the hang of it.


Want some free budgeting worksheets? Grab my free printable budget, finances, and goals sheets here.


Have you ever tried this cash envelope system? If so, did you like it? Would you have any advice for someone trying it for the first time?

Ciao for now…



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