When we first started budgeting we had the HARDEST time staying on track and sticking to our budget plan.
My husband and I couldn’t understand why we were having such a hard time saving money, even though we were budgeting and seemed to have extra money every month to begin with.
But then we got to the end of the month, and all that money was missing. And so was our savings.
What we were really missing was the cash envelope system.
This was the ultimate game-changer.
The most shocking part?……. My husband was totally on board with it! It turns out he liked it just as much as I did. And it was something we could do together.
The honest truth?
Starting a budget is hard. And trying to figure out what method works best for your family can be even harder.
The envelope system could be the saving grace you’ve been looking for.
What is the Cash Envelope System?
The cash envelope system is a budget …… with cash and envelopes.
The only catch is that it has to be your cash in the envelopes. (The envelopes have to be yours, too.)
Using the cash envelope budget is a way to make you more accountable for your money. You can physically see it leaving your hands and it helps determine which purchases are actually necessary.
What’s the real benefit to doing the cash envelope system?
It’s proven that if you carry cash you end up spending less.
And when you spend less, you save more.
When you go to the store and slide your card to purchase something you don’t know EXACTLY how much is in your account at that moment.
Unless you’re tracking your expenses every day it’s hard to know the EXACT amount you have left to spend when you’re grocery shopping.
The real benefit to using the cash envelope system is knowing EXACTLY how much you are spending in every category without having to consistently track your expenses.
When you aren’t consistently using a debit or credit card and just using cash it helps you realize what purchases are really necessary.
Do I have to do it for EVERYTHING?
The cash envelope system doesn’t work for bills that automatically come out of your account, or that you mail.
We keep enough money in our account for any of the auto pay bills.
Only the expenses we pay for in cash goes into our envelopes.
The best part? …
Using cash envelopes can make budgeting 10X easier. And you want to know the reeeeeeeeaally best part?? I can make and track my whole budget in only 30 minutes a month, and I tell you exactly how I do it over here.
Okay, You’ve Convinced Me. How do I Start the Cash Envelope System?
Most people read this and think it’s an awesome idea but they don’t have the motivation to do it.
Little do they know that budgeting (and saving) can set you financially free!
It’s so amazing to know that YOU control your money and that your money doesn’t control YOU.
1 – The first step is writing out all your categories.
Break up all of your cash expenses into categories. These are just the categories you will use envelopes with.
If you have the Financial Planner you can use the budget template to write everything down.
Or, you can use the free simple budget worksheet in the Freebies Page.
After you’ve got your budget for the month you can figure out which categories you want to use for the cash envelope system.
Since we have a lot of bills on auto pay we don’t use envelopes for every category. The main categories we use envelopes for are:
- Grocery
- Restaurant
- Home
- Lunches
- His money
- My money
You can make your own envelope categories, or you can use the same ones I use.
Since we don’t have kids yet our categories are pretty simple.
Other additional envelopes you could consider including are:
- Clothing
- School activities
- Baby Supplies
- Pet
Next, list the categories in your budget template that are on auto pay. The ones that I have are:
- Utilities
- Internet
- Insurance
- Phone
- Subscriptions (Hulu and Amazon Music)
- Rent
- Fuel (because there’s nothing more time-consuming than taking cash into the gas station. I always pay with my debit card.)
Again, our categories are very basic. Others that you can include are:
- Credit card payment
- Car payment
- Debt
- Cable
After writing out your categories, include your income at the top of the budget.
Next to the categories write the amount you are expecting to spend in each category. That way you know how much cash to take out for envelopes and how much to leave in for auto pay bills.
When you get your next paycheck, take out cash to start your envelopes, but leave enough money for your bills on auto pay.
(It’s helpful if you have a calendar to write out your online payments so you know exactly what day they come out of your account. This is the only way I can track it all. And yes, the Financial Planner has a payment calendar included!)
2 – Use your envelopes
Now you can start using your cash envelopes!
I get my envelopes from amazon since I like the coin sized envelopes and I can never find them at the store.
You can find the exact ones I use here.
With my envelope I just write with a sharpie what the category is on the front.
Then I keep an expense tracker inside of my envelopes to write down how much I’ve used and have left.
A budget isn’t there to restrict you, it’s there to give your money a plan.
It’s best to budget by your paycheck
In a perfect world, you would have all your money at the beginning of the month. (Really, in a perfect world you would just have money at your disposable.)
But, since most of us still get paychecks we aren’t able to take out all our cash at once.
For instance, I get paid on the 5th and 20th of each month (and my husbands paycheck is typically a few days after that) .
That means I’m in limbo for about 5 days at the beginning of the month until I get paid.
We have to make sure that either:
A – we don’t spend anything at all for the first 5 days,
B – that we have enough money in our envelopes to get us by or,
C – don’t start our budget until the 5th of each month
Because it’s worked for us, we don’t start our budget until the 5th of every month.
That way we know for sure that we’ll have one paycheck in the bank to get some cash out for the envelopes.
Once we get paid we’ll take out as much as we can that’s needed for the cash envelopes (usually ends up being a little more than half), but keeping enough in our account for any auto pay bills.
Then the next time we get paid we’ll take out the rest of the cash for the month.
Commonly Asked Questions about the Cash Envelope System:
What if my husband also needs to go to the grocery store when I’m not with him? Will he have to take from other envelopes?
I loved the advice of The Budget Mom where she says to have a grocery envelope for your husband of $50. Then put the rest of the grocery cash in your envelope.
That way they always have the cash on hand if they need to pick up something from the store.
This has worked the best for us since I do most of the grocery shopping anyways.
If your grocery shopping is a little more equal, you could even do half and half – half the grocery cash goes to each spouse.
What do you do with all the extra change? I can’t stand carrying extra change in my wallet.
I almost never use change when paying for stuff.
What we’ve done is start a change jar. So all of our extra change goes in that jar for whatever we want.
What if I’m running low on cash in one of my envelopes?
For the first few months while you’re starting this, you’re more than likely not going to get it right from the start.
It’s hard to know EXACTLY the amount you’re going to need every month in each category, but it’s totally okay to continue adjusting to fit your needs.
Obviously this is just a budget, and you do have control over your money.
So if you need to add extra cash to your grocery envelope so your family doesn’t starve, then you can do that!
We’re constantly adjusting based on our needs.
Some months when we know we’re going to go to more events we add a little extra to the entertainment envelope.
Occasionally we’ll run out of money in an envelope.
When that happens, what my husband and I will do is we take from other categories.
The main category we run low on is restaurants. We are hard core Cafe Rio fans and eat there at least once a week.
This means that sometimes we’ll have plenty of cash left over in the grocery envelope but running low in restaurant cash.
So we’ll take some from the grocery envelope and use it for our Cafe Rio money.
The key is to be smart about it and if you find that you’re having to pull consistently from other envelopes to fund your eating out, then just start adding more to that envelope.
Keep adjusting your envelopes until you feel totally comfortable with your cash every month.
And sometimes you need to plan for more of your cash to go towards food.
What if you have extra money at the end of the month in your envelopes?
There’s nothing I love more than finding out at the end of the month that I still have cash leftover in my envelopes!
It’s the greatest feeling of accomplishment and makes you think that you really can do this whole budgeting thing.
But, what do you do with that leftover money?
What we do is just roll it over to the next month.
For example, my husband and I give ourselves some fun money every month of $100 each. 90% of the time he doesn’t spend all of his.
What he does is just continues to add it up so that he can get something big (like a drone he doesn’t need, just kidding …. kind of.)
Another option is to start a cash savings fund like the one we have below.
Any extra cash you have leftover from your envelopes will just be stashed somewhere until you have enough for a fun trip to Cancun or even a fancy date night.
Where do you get your envelopes?
I had the hardest time finding envelopes that I liked at the store. So, I get my cash envelopes on Amazon!
They’re only $13 bucks for a pack of 12 envelopes and are a ton sturdier than regular mail envelopes. They even come with little budget sheets that you can use to track your purchases on.
I love them because they fit the cash perfectly without being too big to carry in my purse!
You can find the cash envelopes over here.
Related → how to budget your money for beginners
It takes some time to get the hang of using the cash envelope system.
Before giving up, give it a couple of months to really get going. There are still days when I forget to use my cash. But I just readjust and keep going.
This is a system that can COMPLETELY change your money habits and even your life if you’ll let it.
It’s also my favorite way to budget and the one I’ve found most successful for my family. I hope you like it just as much as I do!
What’s your favorite way to budget?
Joey says
Great article. Will be saving this for future reference if I get stock on what to do in any specific situation I am not sure about.
Keep it up!!!