The cash envelope system is a spenders godsend when it comes to budgeting.

This easy way of budgeting will keep you from going over budget, and help you stay accountable and on track with your budget.

While using a paper envelope to keep your money in each month might seem a little bit old school or just downright ridiculous, if you have trouble staying on budget then you need to be using this method! No matter how silly it looks before you begin!

This method of budgeting comes from Dave Ramsey and is great for paying off debt and staying on budget!

I’ll teach you how to use the cash envelope system quickly.

Then, I’ll help you easily get started with the cash envelope system.

Plus, I’ve got some beginner cash envelope system tips to get you saving more money right away!

Here is your ultimate guide to using the cash envelope system.

cash envelope system

What is The Cash Envelope System?

If you don’t know what the cash envelope system is or maybe you’ve heard of it but never actually put it into practice. Let me explain what it is first.

The cash envelope system is when you turn a few of your budget categories into cash envelopes.

It’s basically just a visual way to categorize what you are going to spend on certain items.

When you go to buy something that is from one of your designated categories, instead of swiping a debit or credit card, you pull cash out of your envelope and use it.

This system will let you see, at a glance, how much money you have in each category because it will be in an assigned envelope.

Once you’ve spent all the cash inside that envelope, and it’s empty, then you can’t spend any more money on that category until you get paid again to replenish it.

There’s nothing more accountable than single dollar bills staring at you when you know you have to last another 8 days until you get more money!

After a week or so… you get really good at spending the money you predetermined so that you make it last.

You can see how to use the cash envelope system that will be beneficial for your finance.

cash envelope system

How To Use The Cash Envelope System

Truth be told, using the cash envelope system is actually very easy.

This system is best used for Day-to-Day expenses. These are also called variable expenses.

Think about the things you would normally use your debit or credit card to buy (not auto-paid through your bank), and those are the expenses that would work best for the cash envelope system.

Some good examples include groceries, entertainment, eating out, etc.

The best categories to use with cash envelopes are the ones that typically bust your budget (or you have a feeling they are busting your budget).

For example, if you have $400 budgeted for groceries for the month, and you get paid every other week, then you will withdraw $200 on each payday and put it in an envelope labeled Grocery.


Create A Plan For Your Money

These FREE Budgeting Spreadsheets will help you keep a pulse on your money (from the palm of your hand).

This is your grocery money for the month and should only be used to pay for food (and other household items) at the grocery store.

Here’s the hard part: When the envelope is empty, it’s empty! If you want to get more groceries but your envelope is empty, it’s time to start digging through your fridge and pantry to get by until your next payday.

You quickly get creative with meals when you are only using the items inside your pantry… olives and peanut butter anyone?

Get started with the cash envelope system today!

cash envelope system

Think In 7 Days, Not 30

I realize most budgeting plans talk about budgeting for the entire month long, but really, you’ll be more successful if you think about 7 days of spending, not 30.

For your day-to-day expenses, it’s much easier to think in terms of your weekly spending, instead of monthly.

We typically grocery shop for the week, and we think about getting gas on a certain day each week.

That means every week you withdrawal cash out and only spend what you have for that week.

Here’s the thing, you seriously can convince yourself to do almost ANYthing (or NOT do something) for just 7 short days.

And recognizing that your money “resets” every Friday (or Monday, or whatever day you choose) helps you put off extra spending to wait just a couple more days until it refills and you can spend again.

It’s one of the ways I’ve been able to stick to our budget.

I’ll say to myself… we just have to make it to Friday! And sometimes, by the time Friday comes (even if that is only a day or two away), I’ve changed my mind and decided that purchase wasn’t truly that important anyway. Further saving us money!

The beginner cash envelope system only works when you help it by changing your spending habits.

cash envelope system

How to Set Up Your Envelopes

To get started, you need to decide which categories in your budget should be used with cash envelopes.

That means when you look at your budget, what categories could you pull out and use cash for them?

Your mortgage, car payment, and power bill don’t make good envelope choices because you don’t typically pay for them in person.

Not every category in your budget should be put into an envelope!

Here are 90 budget category ideas to get you started!

cash envelope system

We Only Use 2 Envelopes 

I know that it sounds crazy, but we’ve tried using multiple envelopes, and it works best for us to simply use 2 envelopes each month: a Grocery envelope and then an Other envelope.

1. Grocery Envelope

This envelope contains the cash amount that you spend on everything that is used to run your household. Besides the obviously food we pay for out of this envelope. We also pay for any health and beauty supplies (shampoo, conditioner, deodorant, medicines), cleaning supplies (windex, toilet bowl cleaner), laundry supplies (detergent, color catcher), paper products (paper plates, toilet paper, paper towels), household supplies (light bulbs), and pet supplies. Think about the things you use for yourself and inside your home.

2. Other Envelope

This envelope holds the cash for everything else we’d normally use our debit card to buy in our day-to-day spending. Restaurants, home decor, date nights, babysitting money for date nights (if you have little ones), lunch with friends, dry cleaning, gifts for birthdays/showers/weddings and USPS to mail packages.

Your cash envelopes will not be the same as anyone else.

For example, my family uses a Disney envelope to go to have family fun once a month at Disney World in Orlando. If you do not live close to Disney World then an envelope for Disney doesn’t really make sense for you. (note: here is how we do Disney World on a dime)

But we don’t have a sporting envelope (we make the kids earn and pay for sports on their own), but your budget might.

The one expense that usually confuses people is whether or not to use an envelope for their gas. I refuse to go inside a gas station to pay for gas. I feel that I’ll get sidetracked and buy a coffee or gum. Plus, I hate leaving the kids in the car (and when they were younger I would’ve NEVER been able to leave them in the car). But my hubby likes to go inside and hand over the cash so that he doesn’t accidentally overspend in that area.

It’s all based on the needs of your family.

cash envelope system

A Common Problem Most People Have

So one common problem lots of people have when they use cash envelopes is that they “borrow” money from other envelopes.

For example, they set up an envelope for home decor and a separate one for clothing and then when they go to Target, and they don’t buy home decor, but they overspend on clothing… they borrow money out of the home decor envelope to pay for the clothing.

(Guilty as charged.)

When we want to go out to eat and we are out of money in the “Restaurant” envelope, I have a habit of finding new money.

Instead of telling you to resist the temptation to shuffle cash between your envelopes or borrow money from another category, I’m going to tell you that you should just lump it all together {gasp!!} in that “Other” envelope.

It makes the math (and the guilt) so much easier.

However, this only works if you set up multiple checking accounts.

cash envelope system

You Need More Checking Accounts

If you are paying close attention, then you might be wondering what we do with the other Non-Food significant expenses that you would need to purchase each month.

Things like hair cuts, clothing, car expenses (oil changes), and furniture.

If we have a category that we plan to spend more than $500 on in a one year period, then we set up a separate bank account for it and every payday we automatically transfer money into those checking accounts to immediately set it aside.

For example, if we want to designate $50 per month on clothing. Then with each paycheck (every other week) we automatically transfer $25 to our “Clothing Checking Account” .

Then, when we buy clothes, we transfer the money from that secondary checking account into our main checking account and we swipe our debit card.

It makes it way more obvious that we are spending money on clothing. We have to choose to take the money out of the secondary checking. We notice it, and are paying attention to our spending.

cash envelope system

We Have 8 Accounts

Yes, I realize that it sounds crazy for us to have so many checking accounts.

But before you jump ship on Budgeting, please let me explain how we use them to simplify our spending (and budgeting).

Here’s a list of expenses that we separate out of our Main Checking account for these expenses:

  1. Hair Cuts – cuts, coloring, highlights, barber visits, basically anything that happens at the hair salon.
  2. HOA – Home Owners Association dues paid twice a year
  3. Car Repairs – tires, oil changes, vehicle registrations, driver license renewal
  4. Clothing & Shoes – including special occasion wear for prom and homecoming
  5. Family Vacations or Short Trips
  6. Disney Pass Renewal – we live really close to Disney world in Orlando and this is an important thing for our family
  7. Home Repairs – Furniture, TV’s, new water heater, air conditioner service or repair, plumbing repairs, appliance repairs or purchases
  8. Medical Expenses – co-pays, prescriptions, emergency visits

Here’s the thing: Checking accounts are free. And there is no limit as to how many you can have, so why not use them to help you budget your money?


Create A Plan For Your Money

These FREE Budgeting Spreadsheets will help you keep a pulse on your money (from the palm of your hand).

And here’s how it makes budgeting so simple: The day after each payday, I schedule an “automatic transfer” for a certain dollar amount to each of these 8 secondary checking accounts. That way, when we look at our main checking account balance it is MINUS these amounts.

It forces us to set aside the money for these expenses, without having to actually do anything.

We bank with USAA, but we’ve been with Chase, Bank of America as well as a small local bank and all of them had no problem with us having so many checking accounts. We always get the account that doesn’t require a monthly minimum balance.

Also of important note, we don’t get debit cards (nor checks) for any of them, we only use them to temporarily hold the money and we actually spend the money out of our main checking account, using our debit card.

cash envelope system

What About All Our Other Bills?

So after all the categories we’ve discussed, you’ve still got some categories of spending that we need to address.

The auto-paid expenses like your mortgage, electric, water bill, car insurance, internet, cell phone, or home alarm system.

Anything that is auto-paid comes out of your main checking account.

You see, when you have identified how much you are going to spend on the day-to-day expenses and you’ve put the cash into your grocery or other envelopes, then you won’t be touching your regular checking account.

So all your auto-paid expenses will come out automatically! See how easy this beginner cash envelope system really is?!

We also pay for our gas out of this account, even though it is technically a day-to-day expense. There is no way I’m going inside to pay cash at the gas station, so we treat this expense like an auto-paid one.

cash envelope system


While it is crucial to have an emergency fund, you might not be there yet.

If you have a crisis occur in the middle of the month, or towards the end when you don’t have any money left in a category, talk with your spouse and call an emergency budget meeting.

Figure out first if there is truly an emergency at hand, and see if you can make it work. If not, then realize it is okay to adjust the budget.

But let’s be clear, there are several things that do not constitute an emergency.

Things that are not emergencies:

•  Wanting pizza but there’s none in the freezer so you have to order it
•  PMS Chocolate
•  Running out of something (unless it’s crucial like toilet paper)
•  Being bored (try these FREE things to keep you busy)

Keep in mind that the cash envelope system is your defense when it comes to overspending.

These envelopes are there to help you better manage your money and take control of your spending.

If you don’t take them seriously, you can’t expect them to work.

Give this process 90 days (put a goal reminder on your refrigerator for just 3 months from now).

As you can see, you can quickly learn how to use the cash envelope system with these tips.

You can easily get started with the cash envelope system and start saving today.

Plus, these beginner cash envelope system tips will help you get start saving more money right away.

You’ll be so happy with yourself for taking better control of your money.


YOUR TURN: Do you think you can be disciplined enough to use the cash envelope system? What categories would you choose for your envelopes? Let me know in the comments below!

cash envelope system
The Ultimate Guide To The Cash Envelope System