How to Budget With the Cash Envelope System (2024)

Want to keep more of your hard-earned money each month? Try budgeting with cash envelopes!

Ramsey's cash envelope system is nothing new—it’s been around for decades. But some people still don’t know exactly how or why it works. Let me show you! (And if you hang with me until the end, I’ll tell you how to make using cash envelopes more fashionable than ever.)

What Is the CashEnvelope System?

The cash envelope system is a way to track exactly how much money you have in each budget line for the month by keeping your cash tucked away in labeled envelopes.Throughout the month, you can just peek inside an envelope to see what’s left to spend—because you’ll see the literal amount in cash. Right there. How easy is that?

If you’re constantly going overboard in a certain area of your budget (hello, food!), then take out the exact amount of cash you’ve budgeted for that category and stick it in an envelope. When you shop, use what’s in your cash envelope. Nothing more. Once the money is gone, it’s gone—so this will force you to stop overspending and help you achieve your money goals faster.

How the Cash Envelope System Works

One of the reasons we overspend is because there’s nothing telling us when to stop. That’s where your cash envelopes come in. They’re a great tool that’ll help you stick to your budget. Here’s how to use them:

1. Make a budget.

First things first, you need to make a budget. List out your income (everything coming in for the month), and then list out all your expenses. You’re aiming for a zero-based budget—meaning income minus expenses equals zero . . . meaning you’re giving every dollar a job to do. If you want to keep up with this part in an on-the-go budgeting app, check out EveryDollar. It’s free!

2. Think of the budget lines that need a cash envelope.

When you’re making your budget, think hard about those lines that tend to become budget busters. You know, the ones you tend to overspend in month after month. These are the perfect spots to use the envelope system. Here are a few I find most helpful to make envelopes for:

  • Groceries
  • Restaurants
  • Gas
  • Medicine/pharmacy
  • Hair care/makeup
  • Car maintenance
  • Personal
  • Entertainment
  • Gifts

3. Create and fill cash envelopes for those budget lines.

Let’s say you’ve budgeted $700 a month for groceries and you get paid twice a month. When you get your first paycheck of the month, take out $350 from your bank account and put the cash in an envelope. On that envelope, write out“Groceries.” When you get your second paycheck, do the same thing again and put that $350 in the envelope. That’s your $700 food budget for the month.

Take the envelope with you when you go to the grocery store. And remember, if you shop every week and you spend $300 that first week, well, you’ve just got $50 left until your next paycheck. I know, I know—it’s hard. But it’s better than constantly overspending.

And on the flip side, if you get really thrifty all month by meal planning, shopping sales and couponing—and you don’t spend all of the money from the groceries envelope that month—that’s awesome! Put that extra money to work on your current Baby Step (aka the proven way to save money, pay off debt, and build wealth). I’ll talk more about this at the end.

Start budgeting with EveryDollar today!

Here’s the key to making the cash envelope system actually work: During the month, no money—and I meanzero money—comes out of that groceriesenvelopeexceptto pay for food at the grocery store. And if you go food shopping and leave the envelope at home by mistake, turn your car back around. You can’t just sort of use the envelopes and expect them to work.

4. Spend only what you’ve put in each cash envelope.

Don’t forget: When your money’s gone, it’s gone!If you want to go to the store but don’t have enough money, raid the fridge for leftovers. Or do a pantry challenge by digging through your pantry to see what you can find to make dinner without having to hit the grocery store. Using the cash envelope system is a great way to really get intentional about yourspending habits.

Advantages of Using the Cash Envelope System

  • It keeps you on track.
  • It enforces discipline.
  • It holds you accountable.
  • It makes it pretty hard to overspend.

Disadvantages of Using the Cash Envelope System

  • You have to get cash out of your bank account.
  • You have to juggle cash.
  • You have to spend only what you have.
  • Wait—that last one just seems like a challenging advantage.

Is the Envelope System the Same as Cash Stuffing?

If you’re on TikTok or Instagram, you might have seen a trend calledcash stuffing. Cash stuffing is a process of splitting up your cash each month into envelopes assigned to a line of your budget. Does that sound familiar? Yep! Cash stuffing is the same thing as the cash envelope system.

Maybe social media thought cash stuffing was a more exciting way to describe it all, but cash stuffing works the same way as the envelope system: At the beginning of the month, you’re taking out cash from your paycheck to fill your labeled envelopes. For example, if you’ve budgeted $35 toward your“Beauty”budget line, you’d stuff $35 of cash into that cash envelope.

Different name. Same technique. Honestly, I’m just glad there’s a social media trend that helps people keep from overspending. Just know that if you jumped on the cash-stuffing bandwagon, you’re using the cash envelope system. (It’s all envelope budgeting!) And you’re working on being intentional with your spending. Bravo!

What if I Pay Some of My Expenses Online?

Here’s the thing with the envelope budgeting system: It works better when you’re actually physically walking into a store to make a purchase. Shopping at the grocery store, going out to eat, getting a haircut or oil change—these are all times when using the cash envelope system works really well.

You can still use cash envelopes for online purchases, but it does get a little trickier. Write the amount you’ve budgeted for on the outside of the envelope, and don’t spend more online than the amount you’ve jotted down. Keep track of how much you’ve spent, and write it on the back of the envelope, just like if you were balancing a checkbook.

What if I Run Out of Money in My Cash Envelope?

Be careful not to borrow from the other cash envelopes. When it comes to the envelope system, it can be really tempting to shuffle cash from one line item to fund another.

Let’s say you used up all the money in your restaurants envelope—don’t be surprised if some inner voice tells you to grab your clothing envelope.

Remember, the whole purpose of using cash envelopes is to control your spending and help you stick to your budget.

If you run out of restaurant money, eat leftovers instead of going out. If you see your gas money slipping away faster than you planned, it’s time to use some gas saving tips—like limiting your trips or carpooling to work. Find creative ways to make your money stretch when the envelopes are getting low.

And don’t just spend, spend, spend until your cash envelope is empty. Pay attention to how much is left! This will help you spread out your spending and keep you from getting to the end of the envelope before the end of the month.

What About Emergencies?

If you have a crisis come up in the middle of the month or something happens and you have absolutely no choice but to shift your cash envelopes around, figure out how to adjust your budget.

If you’re married, talk with your spouse and decide together on the best course of action. Both of you need to be involved—it’s a joint decision. Or if you’re single, run the amounts by your accountability partner to get their input.Don’t jump into pulling from your emergency fund immediately, and don’t drain other envelopes for every surprise expense.

What if I Have Money Left in My Cash Envelope at the End of the Month?

I mentioned this super briefly before. But if you’ve got money left in an envelope at the end of the month, congratulations! You came in under budget. That’s the best feeling in the world. And it’s okay to celebrate too . . . with a budget-friendly reward. You should totally celebrate those little wins along the way!

Then, put that extra money to work. If you don’t have Baby Step 1 set up (a starter emergency fund of $1,000), get on it! And if you’re onBaby Step 2 and paying off your debt, take that extra cash and put it toward yourdebt snowball. Every little bit helps.

Remember,cash envelopes are powerful weapons in the fight against overspending. They can help you manage your money better than you ever have. Put the cash envelope system to work for you, and get intentional about how you’re spending your money.

Take Your Cash Envelopes to the Next Level

Okay, guys, since we’re talking about the cash envelope system, I want to tell you about the wallet I created! It’s beautifully designed and will empower you to use your cash envelopes and budget the way you want to.

Here are some of my favorite things about the wallet:

  • Four interior envelopes for cash
  • Ten slots for debit cards and gift cards
  • A zippered pouch for coins, coupons or receipts
  • A high-quality genuine leather exterior (aka it looks good and it’s built to last)
  • Wristlet with zip-top closure
  • Multiple colors (black, camel, metallic blush and more!)

And honestly, my most favorite part is the partnership with JOYN that makes these wallets. JOYN provides fair-trade jobs to vulnerable locals in India so they can have dignity, livelihood and a future.

So, while you’re saving money and working to change your family tree, so is each person handmaking this wallet. As much as I believe using these wallets can change your life for the better, I know it will do that for the people making them as well.Get yours today!

And remember: Whether you call it the cash envelope system or cash stuffing, this method is all about being intentional with your spending so you can start creating a life you love. It’s totally worth it, and you can totally do it!

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About the author

Rachel Cruze

Rachel Cruze is a #1New York Timesbestselling author, financial expert, and host ofThe Rachel Cruze Show. Rachel writes and speaks on personal finances, budgeting, investing and money trends. As a co-host of The Ramsey Show, America’s second-largest talk radio show, Rachel reaches millions of weekly listeners with her personal finance advice. She has appeared on Good Morning America and Fox News and has been featured in publications such as Time, Real Simpleand Women’s Health magazines. Through her shows, books, syndicated columns and speaking events, Rachel shares fun, practical ways to take control of your money and create a life you love. Learn More.

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How to Budget With the Cash Envelope System (2024)


How to Budget With the Cash Envelope System? ›

A common practice for this is the 50/30/20 budget rule, which is devoting 50 percent of your income to needs, 30 percent to wants and 20 percent to savings. This step will help you determine how much money to devote from every paycheck into each envelope.

How do you budget cash envelopes? ›

The concept is simple: Take a few envelopes, write a specific expense category on each one — like groceries, rent or student loans — and then put the money you plan to spend on those things into the envelopes. Traditionally, people have used the envelope system on a monthly basis, using actual cash and envelopes.

What is the best advice when using the envelope method for budgeting? ›

Find creative ways to make your money stretch when the envelopes are getting low. And don't just spend, spend, spend until your cash envelope is empty. Pay attention to how much is left! This will help you spread out your spending and keep you from getting to the end of the envelope before the end of the month.

How effective is the cash envelope system? ›

The envelope budgeting system can be a good fit for people who want to track their spending and need help staying within their monthly allowance. Here are some other upsides: It may help you spend less. People tend to spend less when using cash.

What is the 50 20 30 method? ›

One of the most common types of percentage-based budgets is the 50/30/20 rule. The idea is to divide your income into three categories, spending 50% on needs, 30% on wants, and 20% on savings.

How to save $5000 in 3 months with 100 envelopes? ›

The 100-envelope challenge is pretty straightforward: You take 100 envelopes, number each of them and then save the corresponding dollar amount in each envelope. For instance, you put $1 in “Envelope 1,” $2 in “Envelope 2,” and so on. By the end of 100 days, you'll have saved $5,050.

What is the downside to cash envelope system? ›

You may also feel unsafe carrying cash, as it's harder to track it when it's lost or stolen. It can be cumbersome to get started: Getting all the envelopes ready and allocating money into categories can take some time to set it all up, especially if you haven't created a budget before.

Does cash stuffing really work? ›

Cash stuffing, like other budgeting methods, is a way to plan out your spending and keep track of expenses. While it can be helpful for curbing overspending and limiting credit card debt, the downside of budgeting with cash is that you're missing out on the protection and yields offered by bank accounts.

What is one potential downside of using a cash envelope budget? ›

One potential downside of using a cash envelope budget is the inconvenience of having to physically carry and manage cash. This can be especially cumbersome for those who prefer to use credit or debit cards for their purchases. Additionally, carrying a significant amount of cash can be a security risk.

What is the cash budget method? ›

A cash budget is a company's estimation of cash inflows and outflows over a specific period of time, which can be weekly, monthly, quarterly, or annually. A company will use a cash budget to determine whether it has sufficient cash to continue operating over the given time frame.

Does Dave Ramsey use the envelope system? ›

This is Dave Ramsey's proven, easy-to-use cash management system. Try this simple way to manage your household income and expenses and avoid spending more than you earn. The Essential Cash Envelope System has the same great functions of the traditional envelope systems you know and love but with a fresh look!

How does the 50 20 30 rule distribute your income? ›

The 50/30/20 budget rule states that you should spend up to 50% of your after-tax income on needs and obligations that you must have or must do. The remaining half should be split between savings and debt repayment (20%) and everything else that you might want (30%).

Is $1,000 a month enough to live on after bills? ›

Bottom Line. Living on $1,000 per month is a challenge. From the high costs of housing, transportation and food, plus trying to keep your bills to a minimum, it would be difficult for anyone living alone to make this work. But with some creativity, roommates and strategy, you might be able to pull it off.

When should you not use the 50 30 20 rule? ›

The basic concept behind the 50/30/20 rule works for just about anyone. But depending on your income and debt load, you may need to adjust the exact breakdown of your expenses. For example, a low-income household may need to spend more than 50% of their after-tax pay on needs.

What is the rule of thumb for budgeting? ›

The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals.

How to save $5,000 in a year with envelopes? ›

It works like this: Gather 100 envelopes and number them from 1 to 100. Each day, fill up one envelope with the amount of cash corresponding to the number on the envelope. You can fill up the envelopes in order or pick them at random. After you've filled up all the envelopes, you'll have a total savings of $5,050.

How do you organize cash envelopes? ›

If you want to keep your budgeting plan as straightforward as possible, you can simply use a box or filing cabinet to store your cash envelopes. Each envelope will represent a different spending category, and you'll assign a specific amount of cash each month to that category.

How to save $10,000 in 100 envelopes? ›

On each envelope, write the day number and the amount you need to save for that day. For instance, on the first envelope, you would write "Day 1: $1" and on the second envelope "Day 2: $2", and so on all the way to Day 100: $100. Each day, you take the envelope for that day and put the designated amount of cash inside.

What is the best way to budget cash? ›

Start by determining your take-home (net) income, then take a pulse on your current spending. Finally, apply the 50/30/20 budget principles: 50% toward needs, 30% toward wants and 20% toward savings and debt repayment.

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