Want to take control of your spending and feel more confident with your money?
Try the cash envelope system!
I’ll show you exactly how the cash envelope system works and how to start using it this month. (Plus, I’ll tell you how to make cash envelopes more fashionable than ever!)
What Is the Cash Envelope System?
The cash envelope system is a simple budgeting method that uses labeled envelopes filled with cash to help you track spending and stay on budget.
The envelope method is a powerful way to fight overspending, especially in the areas where you tend to go overboard (hello, food!).
You may have also heard of cash stuffing—which is just a trendy spin on the cash envelope system. People love making envelope budgeting more personal with colorful envelopes and creative setups. But the heart of it is still the same: telling your money where to go so you don’t wonder where it went.
How Does Envelope Budgeting Work?
When budgeting with the cash envelope system, you decide how much money you want to spend in each category for the month—like groceries, gas, restaurants or fun money—and take out those amounts in cash.
Then you divide the cash into individual envelopes labeled with each category. When you shop, you only use what’s in your envelopes. And it’s easy to know how much you have left to spend throughout the month—because you can literally see the cash that’s left in your envelopes.
And when the money’s gone from the envelope? It’s gone. That’s what helps you stay on track, stop overspending, and actually start making progress on your money goals!
How to Use the Cash Envelope System: Step by Step
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 where your income minus your expenses equals zero. This means you’re giving every dollar a job to do (whether that’s giving, saving or spending).
If you want to do this part with a budgeting app, check out EveryDollar. It’s free!
2. Choose the budget lines that need a cash envelope.
When you’re making your budget, think about those areas that usually become budget busters. You know, the ones where you tend to overspend month after month. These are the perfect spots to use envelope budgeting.
Here are a few budget lines I find most helpful to make envelopes for:
Groceries
Restaurants
Gas
Medicine/pharmacy
Hair care/makeup
Car maintenance
Personal
Entertainment
Gifts
3. Label and stuff your cash envelopes.
Now for the fun part—stuffing your envelopes!
After you’ve made your budget and grabbed cash from the bank, take your envelopes and label each one with its spending category (like groceries, gas or fun money). Then, simply count out the cash you’ve set aside for each category and place it in the matching envelope.
If you get paid twice a month, this still works for you too! Let’s say you’ve budgeted $700 a month for groceries. When you get your first paycheck of the month, take out $350 from your bank account and put the cash in an envelope—and label it “Groceries.” When you get your second paycheck, do the same thing again and put that $350 in the envelope.
Just like that, you’ve funded your $700 grocery budget for the month—without overspending or guessing.
4. Spend only what’s in your cash envelopes.
Take your envelopes with you when you head to the grocery store, run errands, or go out to eat. And here’s the super important part: Only use the assigned cash to make your purchases.
During the month, the only money that comes out of that Groceries envelope is the money you use to pay for food at the grocery store. If you leave the envelope at home by mistake, turn your car back around.
Also, if you spend most of your Groceries envelope in the first week, you’re going to have to cut back the rest of the month (try meal planning, shopping sales, and couponing). I know, I know—it’s hard. But it’s better than constantly overspending.
And when you run out of cash in your envelope, that’s it. If you want to go to the store but don’t have anything left in your envelope, raid your fridge for leftovers. Or dig through your pantry to see what you can find to make dinner.
Because here’s the deal: The cash envelope system only works if you stick to it. You can’t just use the envelopes some of the time—you’ve got to use them the whole month. That’s how you build better spending habits.
If You Run Out of Money in Your Cash Envelope
It might be tempting to dip into other envelopes when one runs low—but resist the urge! The whole point of the envelope method is to help you stay on track and stick to your budget.
So, if your Restaurants envelope is empty, take it as a sign it’s time to eat at home and get creative with what’s in your pantry. Don’t borrow from your groceries or gas money just to cover tacos or takeout.
Instead, plan ahead and pace yourself. Keep an eye on how much is left in each envelope so you don’t run out of cash before the end of the month.
If You Have Money Left in Your Cash Envelope at the End of the Month
If you’ve got money left in an envelope at the end of the month, congrats! Coming in under budget is the best feeling. And it’s okay to celebrate (with a budget-friendly reward).
But it’s also important to make that extra money work for you by putting it toward your current Baby Step (the Ramsey Baby Steps are the proven way to save money, pay off debt, and build wealth).
If you don’t already have Baby Step 1 set up (aka a starter emergency fund of $1,000), that’s your first goal! And if you’re on Baby Step 2 and paying off your debt, take that extra cash and put it toward your debt snowball. Every little bit helps!
Cash envelopes can help you manage your money better than you ever have—and help you reach your money goals faster. So put the cash envelope system to work!
Advantages of 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 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 just seems like a challenging advantage.)
Take Your Cash Envelopes to the Next Level
Since we’re talking about the cash envelope system, I’ve got to share the wallet I designed to go right along with it!
The Rachel Cruze wallet is stylish, durable and made to help you confidently budget with the envelope method.
I love so many things about this wallet! For starters, it’s got:
Four interior envelopes for cash
10 slots for debit cards and gift cards
A zippered pouch for coins, coupons or receipts
A high-quality genuine leather exterior (so it looks good and it’s built to last)
A wrist strap and zip-top closure
Multiple color choices (black, camel, metallic blush and more!)
And honestly, my favorite part is the partnership with JOYN, the company that makes these wallets. JOYN provides fair-trade jobs to vulnerable locals in India so they can have dignity, a 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!
Remember, the cash envelope system is all about being intentional with your money—so you can build the life you really want. It’s simple, it works, and yes, it’s totally worth it.
Now grab those envelopes and start stuffing—your budget (and your future self) will thank you!
