Cash envelopes are one of the best ways to budget because you know exactly how much money you have to spend. When you only have a specific amount left after bills, you know that you can’t overspend on food, clothing, and fun. 

Using cash envelopes to budget makes sense. It’s an excellent way to find financial freedom and pay off debt.

What Are Cash Envelopes, And Why Should You Use Them 

Cash envelopes are a great option to keep track of your spending and ensure that you do not overspend in any one area. The envelope system will allocate a certain amount of money for each spending category, such as food, gas, or entertainment. Allocating amounts will help you stay on track with your budget and avoid overspending.

Our ancestors started cash envelopes when money first became a use for trade. They did not use banks as much for holding money. When you got money, you save it to use as needed.

When my grandparents were young, they used envelopes to allocate money and assign purposes. I remember my grandmother taking an envelope out at the grocery store when I was a kid. I can remember a handful of times, remembering that as an adult. also.

In the last few decades, Dave Ramsey has made it popular again as a way you pay off debt. It works for many because it’s a way to see and feel the capital loss.

Cash budgeting forces you to spend money intentionally when swiping a card gives you the freedom to spend without much thought about paying it back (until you get the statement).

Having limits and rules to spending works well for many people. They see it as the freedom to spend on what’s most important to them and manage their finances to give them control where they may not have it while swiping plastic.

How To Set Up A Cash Envelope System

A cash envelope budget system will vary from person to person. Each individual or family will have areas where they want to improve or where money is limited. This system will allow you to customize your plan to fit your needs.

Decide what categories you will need to budget.

Common categories include food (including groceries), entertainment, clothes, and beauty. Most people choose their classifications based on what they tend to overspend on.

Other categories to keep in mind are holidays, specifically Christmas. Often, holidays sneak up on people, and they scramble at the last minute to come up with the funds for gifts. Birthdays are another excellent idea for the cash envelope system.

Determine how much you will need to spend in each category.

The amount in each category will vary based on your income and variable expenses. Begin by looking at your previous spending habits. How much did you spend on average each month in each category? Tracking will give you a good starting point for setting your budget.

Set up your cash envelopes accordingly once you have determined how much you need to spend in each category.

You may decide to schedule your cash stuffing at the beginning of each month or depending on your paycheck. Many people get paid twice a month, so they add their money to each envelope.

Create or purchase cash envelopes for each category.

Label each envelope with the category name and the amount of money you have allocated for that category.

For example, If you get paid on the first and the fifteenth, you might add $250 to each paycheck’s grocery envelope. When that $250 is gone, you must wait for our second paycheck on the 15th to replenish that envelope.

Put the cash envelopes in a safe place where you will not spend the money on other things.

Whether your envelopes are being used daily (like food) or for long-term savings (like Christmas or Birthdays) will depend on where you keep them.

An excellent place to keep short-term cash envelopes is in your purse or wallet to always have them with you when you go shopping. Long-term envelopes should be kept in a safe, undisclosed location free from fire or water.

How To Use Your Cash Envelopes To Stay On Track

When it comes time to spend money in a specific category, take the cash out of the envelope and use it to pay for the purchase.

Do not remove money from one envelope to spend in another category.

For example, if you have $100 allocated for your food budget and you’ve already spent it, do not pull other funds from your entertainment budgeting category envelope.  Do not steal from one category to fuel the other budget categories where you might be overspending. 

The money should stay in the original envelope until it is time to replenish it and you’ll have to eat the food you already have instead of buying more.

At the end of the month, check envelopes to see how much money you have left in each category.

Suppose you have leftovers. That’s great. You are sticking to your budget.

That is okay if you have spent all of the money in a particular category. Just make a note of it so that you can adjust your budget for the next month.

Benefits Of Using A Cash Envelope System

A cash envelope system is an excellent idea to stay on track with your spending.

Being honest with yourself when setting up your budget and allocating enough money for each category is essential.

If you’re constantly running out of money in one particular category, adjust your budget to meet your needs better.

There are many benefits to using this type of budget, including:

  • You can see exactly where your money is going. When you use cash envelopes, you can easily take note of your spending. Using paper instead of plastic allows you to make necessary adjustments to ensure that your money is being spent in the way you want.
  • You can stay on track with your goals. A cash envelope budget can help you to meet your those faster. Using this type of budget means knowing exactly how much money you have available to spend in each category. it’s an excellent way of saving money for something specific or for debt freedom.
  • You can avoid overspending. One of the biggest dangers of credit cards is that it is easy to overspend. With budgeting money this way, you can only spend the money that you have available. Having a specified amount helps prevent you from getting into debt or spending more than you can afford.

If you are looking for a way to manage your finances, a cash envelope budget may be perfect.

Is Using Cash Envelopes Safe?

Things could happen. You could lose your wallet, or it could get stolen. It is not necessarily good to carry around all your cash simultaneously. It’s wise to carry what you plan to spend that day with you.

Carrying cash does mean that some planning will need to happen. You will need to know when you plan on going grocery shopping or to Target.

You should know when you’ll get a haircut or buy a birthday gift. Grabbing that envelope as needed instead of carrying it around is wise.

The facts are that rarely are you robbed, nor do you lose your wallet. It doesn’t happen to many as an everyday occurrence.

Don’t flash around hundred-dollar bills while checking out, and be smart about your surroundings.

Tips For Budgeting Envelopes 

1. Start small and gradually increase the amount envelopes you use. Feel success with only one or two categories to start.

2. Allow yourself some time and grace to get used to a new budgeting tool, and don’t give up after one budget debacle. These will happen, and it’s okay.

3. Be flexible and willing to adjust your budget as needed

4. Have a plan for any extra money you may have at the end of the month.

5. Stick with it! Budgeting takes time and practice to master, but it is worth it in the long run.

6. Other Ideas for organization are small budget binders in the a6 size in assorted colors with zipper envelopes, the Clever Fox system, or a genuine leather cash envelope wallet. You can even find custom laminated envelopes on Etsy.

7. Make it fun. Decorate your budget binder and create trackers for your envelope system. It doesn’t have to be depressing.

Cons of Using Cash Envelopes


You will have to go to the bank and get your money each time you want to stuff your envelopes. Going to the bank will also mean knowing and requesting which denominations you need.

Harder to track spending

If you’re a micromanager, you will find it harder to track where you are spending your money. For example, you may use your food envelope for everything from groceries to the Starbucks drive-thru. Unless you have receipts in that envelope, you might not know where the contents went.

Difficult to get everyone to agree

Getting everyone on the same page might be more complicated if you have a spouse and family, like swiping a card for a quick drive-thru or gas. And to get all to agree on ditching that might pose a challenge.

No credit card perks or rewards

The primary purpose of this style of a money management system is to gain control of spending and overspending. The denial of the perks might be a downside, but it’s just for now, not forever. You might need to sacrifice those points for the greater good.

Final Thoughts On How To Use Cash Envelopes For Budgeting

Cash envelopes are one of the most popular and successful ways to budget because they are all right there. 

When you only have a specific amount of money left after bills, you know that you can’t overspend on food, clothing, and fun. By using cash envelopes to budget, you can avoid overspending t.

If you are looking for a way to manage your finances better, give cash envelope budgeting a try. It may take some time to get used to, but it can be a helpful tool in reaching your financial goals.

By following these tips, you can make the most of your cash budget, improve your financial situation, and meet your goals. Budgeting takes time and practice to master, but it is worth it in the long run.

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