How To Use The Cash Envelope System To Master Your Budget

A cash envelope system is a useful budgeting tool for anyone that needs a visual budget to stay on track. Not only will this method help ensure your spending is controlled, but it has also been shown that cash envelope budgeting may lead to spending less money!

Although the envelope money system will not work for everyone, it can be a great option for anyone that needs to see exactly where their money is going.

Cash envelope system

In this article, will dive into explaining what the cash envelope system is and how it can be used to stay on top of your budget.

What is the cash envelope system?

The cash envelope system is exactly what it sounds like. You put your cash into different envelopes based on your choice of budget categories. Next, it’s time to figure out how much will go into each cash envelope based on your spending goals.

For example, you might put $300 in the grocery budget and $150 in the fun budget. The key is that you’ll only be able to use the cash from these envelopes to pay for expenses that fall under each category.

The cash envelope categories are designed to encompass your variable spending. So, you would have a groceries envelope, one for beauty, another one for household supplies and an envelope for fun. You could also try a cash envelope challenge for a fixed time period!

However, your fixed expenses such as your mortgage or car payment are not meant to be included in your cash envelope budget. You can continue to pay these fixed expenses as you normally would.

Does the cash envelope system work?

Yes, the cash envelope system works and it can transform your finances. That said, it needs to be a good fit for you. With the cash envelope system, you’ll be able to easily see how much you are spending in each category based on the cash you have on hand.

Instead of simply swiping your debit or credit card and forgetting about it, you’ll be forced to part with your cash in exchange for your purchase.

The physical action of handing over cash can make you stop to think about exactly how much you are spending in the checkout line. It is a more tangible process to spend cash as opposed to plastic funds. As you spend the money in each cash envelope, you’ll be forced to watch your cash funds dwindle.

Simply seeing where your money is going can be a transformative process. You might be less likely to overspend when you can see your cash flying out of the envelope.

For example, you might skip an impulse buy towards the end of your shopping trip because you know that you only have so much money to spend on that category before the end of the month. If you have a habit of overspending, then the cash envelope system might be a useful budgeting strategy to try.

Is the cash envelope system the same as cash stuffing?

Yes, cash stuffing is a more modern term that is used to describe the envelope system. You’ll probably come across references to cash stuffing more on social media, but it works in exactly the same way as the cash envelope wallet.

Cash stuffing refers to the part of the budgeting method where you physically withdraw money from your bank and stuff it into pre-labelled envelopes that cover your spending. You then use this cash to pay for your expenses for that month.

If you don’t fancy stuffing cash into envelopes, some people use jars, binders or any type of container to hold your money.

Who is the cash envelope system ideal for?

The cash envelope system works best for anyone that needs to visualize where their hard-earned money is going and take control of their finances.

So, should you use the cash envelope method? If you answer yes to any of the questions below, it’s definitely worth a go!

  • Are you new to budgeting?
  • Do you need help sticking to your monthly budget?
  • Are you a person that likes to visualize things?
  • Do you regularly overspend?
  • Are you unaware of where your money goes each month?
  • Do you want to control where your cash goes?

How to use the cash envelope system

When you first start to develop your cash envelope money system, it is important to remember that every budget is unique. You have the ability to choose your cash amounts for each category.

With that, the amount of cash you place in each envelope is a reflection of your personal values. So it will likely be different than anyone else’s. For example, you might put a large portion of your cash into your ‘hobby’ envelope while others may put a large portion of their cash into a ‘pet envelope.

Don’t compare yourself to others because you are the person who will need to stick to the budget. Also, don’t try to restrict yourself too much at one time because you might be more likely to break your resolve.

It can feel like a complicated process for the first couple of months. But once you get the hang of it, you might find it infinitely more effective than your previous budgeting methods. The key is to stick to the plan and work out the kinks for the first couple of cycles.

If you are intrigued by the idea of cash envelope budgeting, then read on. We will show you exactly how to get started with this budgeting strategy.

1. Create your budget

The first thing you need to do is create your budget. In order to successfully use your cash envelope system, you’ll need to create a meaningful budget. If you put too much or too little cash into your envelopes, your whole financial life might go haywire.

It’s not difficult to build a budget for yourself, but it is important to understand that you’ll likely need to tweak it over time. Life changes as you grow and you’ll need to adapt to new expenses as they arise.

To start building a budget, you’ll need to track your spending. If you have no idea where your money is going each month, then you’ll need to start here.

You can track expenses by combing through bank statements and credit card statements or saving your receipts for later. It is a good idea to track your expenses for a minimum of a month. For a full picture of your variable expenses, you may want to track your expenses for three months.

In addition to tracking your expenses, you need to find out what you can actually afford to spend each month. Take a closer look at your income after taxes to ensure that you are creating a budget that you can actually afford. After determining your post-tax income, determine how much of your income needs to cover your fixed expenses such as your mortgage.

Once you’ve subtracted your fixed expenses from your post-tax income, you’ll know exactly how much money you have leftover for variable expenses. You can make envelopes to encompass each of your variable expenses.

2. Look at your spending categories

After you have tracked your spending for at least one month, it’s time to split your spending into separate cash envelope categories. This will tell you how much you have spent in each area.

A few variable cash envelope categories that you may want to include are:

  • Food
  • Restaurants
  • Gas
  • Fun
  • Beauty
  • Pet
  • Vacations
  • Clothes
  • Hobby
  • Miscellaneous – anything else that needs to come out of your variable outgoings

After you’ve determined how much you’ve spent in each category, make sure that you can actually afford this level of spending. It might surprise you to find out that you’ve spent more than you’ve earned in a given month.

If you’ve spent more than you’ve expected, then the cash envelope system could be the best solution for you. It will force you to think about your spending before you make the purchase.

As you move forward with the cash envelope budgeting system, think of it as a fresh start. Don’t beat yourself up over past spending mistakes. Instead, look towards the future and work towards your financial goals.

Whether you want to pay down credit card debt or build your savings, a cash budgeting system can help you to achieve those goals.

3. Set limits for all categories

Next, set spending limits for each of your cash envelope categories. Start with what you are able to spend in a given cycle, then take your previous spending into account. Base your spending limits on how much you can actually afford, not what you think you can spend or would like to spend in a given category.

If you’ve consistently spent more than your income, then your new spending limits might seem harsh. However, living within your means is critical to long-term financial and total well-being so it is important to be honest with yourself about this.

If you cannot stick to the spending limits, then it might be time to start thinking about a flexible side hustle to supplement your income.

4. Fill your envelopes with cash

After you’ve set your spending limits for each cycle, now comes the easy part of filling your cash envelopes. Either fill your envelopes with your next paycheck or once a month. Find a cycle that works best for you and try to stick to it. Make sure to avoid any unnecessary ATM fees while taking out cash.

Once the money is in the correct cash envelope, you’ll need to diligently spend out of the appropriate cash envelope categories. If you have extra cash at the end of a cycle, then you can roll it into the next month or put it into your savings.

If you are saving money, you can try out the 100-envelope challenge or the 200-envelope challenge!

5. Adjust as needed

As you continue to use the envelope money system, it is important to realize that you may need to adjust along the way. In fact, adjusting your budget along the way should be an expected part of the process. Don’t expect to nail your spending restrictions in the first month.

Some spending categories might seem overly stuffed while others are ambitiously slim. Although it is all variable spending, you should set spending caps for each category relatively close to what you need each cycle.

Throughout the process, you might uncover a bad trend or hidden spending habits that are destroying your budget. You may also find that you are more thrifty than you thought! When you are pressed against the cash restriction, you might find that you are suddenly more willing to try a DIY fix instead of throwing cash at your problems.

If you find that the cash envelope system is not working for you but the budgeting categories are helping then consider another option. You may want to switch to a ‘virtual envelope’ system instead of a cash system. Be aware of your own preferences and build a budget that will encourage you to stay on track.

Expert tip: It’s ok to repurpose your cash envelopes if you need to

It’s ok to repurpose cash from other envelopes occasionally if you’re running low in a spending area. But only if you’re 100% sure that you’ll have enough left in the envelope that you’re taking from to cover your expenses for the month.

If you do find yourself taking cash from other envelopes, it’s a good idea to rethink how much you are allocating to that particular category and even the labels you are using.

The cash envelope system takes some to perfect, so don’t give up straight away!

Where to find your cash envelopes

The cash envelope budgeting system is a very popular approach to getting a handle on your budget. Due to this popularity, you have many choices when it comes to carrying your cash in these envelopes. They can even make great gifts for your financially-astute friends.

Here are a few places to look: (NoteThis section contains some affiliate links from brands we use & love that help us grow Clever Girl Finance! Please see our disclosures for more information.)

Plain white envelopes

Of course, you can go with the standard white envelopes. After all, if your ultimate goal is to save money then this is an affordable option. You can get 500 plain envelopes for around $20 on Amazon.


Many Amazon sellers offer colorful envelope options to keep your budget cheerful. Our favs are these cute reusable cash envelopes for under $15 which also come with budgeting sheets.

Laminated cash envelopes


Etsy offers a multitude of fun cash envelope options to make sure your budget stays fun. Choose an option that suits your style.

Make them yourself

You can also make fun cash envelopes yourself. After picking out some fun paper from the craft store, you can fold your own envelopes and decorate to your heart’s content. Don’t be afraid to enjoy the crafting process. You might even be more likely to stick to the cash system if you’ve put in the effort to make your own envelopes.

Be sure to check our detailed list and review of the best cash envelope wallets.

If you are worried about how to carry your new envelopes in a fashionable way, don’t worry! You don’t have to leave these envelopes full of cash loose in your purse.

Many stores offer cash envelope wallets that will allow you to stash your envelopes in addition to your other wallet essentials. You can still have a functional wallet that offers an organized way to keep track of your cash.

As an alternative, you can also use digital cash envelopes too!

What are the pros of cash envelopes?

There are lots of different budgeting techniques out there, so it’s important to find one that works for you. The benefits of using cash envelopes are:

Take control of your spending

The cash envelope system will highlight which areas you’re overspending on, so you can easily identify what you need to cut back on. Impulse purchases are also much less likely to happen because a transaction needs to be planned to ensure you have enough cash.

Gain insights into your spending habits

Lots of people don’t actually know where their monthly income goes. If this applies to you, creating an envelope for each spending area will highlight exactly what your money is being spent on.


It doesn’t matter how old you are or what your financial goals are, the envelope system is a great way to budget. You can easily change your spending categories and limits in each area as your priorities change.

What are the cons of cash envelopes?

If you’re thinking about using the cash envelope method, there are some things you need to be aware of first.

It can be difficult to track family spending

If you have a family budget, it can be hard to keep an eye on where your money is going if different people are taking cash out of the envelopes. If you do decide to use cash envelopes, you’ll need to keep track of where the money from each envelope goes with a list or spreadsheet.

Holding cash carries some risk

Keeping large amounts of cash at home can leave you vulnerable to theft or loss. Likewise, withdrawing cash at an ATM and carrying it home can be risky compared to just making online purchases.

Cash won’t improve your credit score

Dealing purely in cash does have its downsides if you need to borrow money in the future. Making purchases in cash doesn’t demonstrate to lenders that you are responsible with money like having a credit card does.

How do I start using cash envelopes?

First things first, you need to make the time to set up and organize your spending categories, cash and envelopes. The best time to do this is at the end of the month, so you can get everything ready for the start of the next month.

Do this when you don’t have any other distractions and you’re positive and motivated. You need to be focused and in the right mindset to achieve the best results. 

Next, follow these steps:

  1. Create your budget
  2. Look at the categories of your spending
  3. Set limits for each category
  4. Fill your envelopes with cash
  5. Adjust your envelopes as needed during the month
  6. Review and reset for the next month

It may take a few months to get used to this budgeting technique, but it’s worth sticking with it if you want to take back control of your spending. As the months go by, it will become second nature and you’ll have a detailed insight into your spending habits-both good and bad!

How do you categorize cash envelopes?

Everyone will categorize their spending areas differently, and that’s ok! The most important thing is that the categories you use work for your individual spending habits and lifestyle. Start by considering what areas you spend money on each month.

Here are some suggestions for how to organize your categories effectively. You don’t need to use all of them, just pick the ones that suit you.

  • Mortgage/rent
  • Groceries
  • Utility bills (including cell phone bills)
  • Medical
  • Car (payment, fuel, gas, insurance, maintenance)
  • Household items (necessities such as cleaning supplies and toiletries)
  • Clothing and shoes
  • Children
  • Pets
  • Leisure and entertainment
  • Hobbies
  • Travel and vacations
  • Gifts
  • Miscellaneous (to cover anything that doesn’t fall into another category)

Before you decide on a budget for each area, write a list of the types of things that will come under each category. You can then refer back to this at a later date if you’re not sure what category to put an item into.

What do I do with money left over in my cash envelopes?

If you find yourself with extra money in your envelopes at the end of the month, there are a few things that you can do with it.

Save it

Give your savings fund a boost and get one step closer to achieving your next goal.  Whether you’re working towards having enough funds to take a vacation or buy a new car, every little will help you smash your target.

Pay off debt

The sooner you pay off debt, the less interest you will pay over time and the more financial stability you will have. So using leftover money from your envelopes is a smart financial move.

Carry it over to next month

If you have a tight budget, putting leftover funds into next month’s envelope is a great way to keep control of your spending. This will work particularly well if you’re new to the cash envelope budgeting system and still figuring out how much money to allocate to each of your spending areas.

Treat yourself

Everyone deserves a treat now and then! Budgeting isn’t all about only spending money on essentials. It’s about being smart with your money. And if you can afford a treat, you should absolutely do it!

One of the many benefits of the cash envelope system is that it’s flexible. One month you could use spare money to pay off debt and the next month you could treat yourself. Or you could even do a combination of a few of the ideas above.

If you find yourself with spare money in your envelopes regularly it may be worth increasing your spend in some areas such as saving or debt repayments.

If you enjoyed this article on the cash envelope system, check out this related content:

Give the cash envelope system a try!

Cash envelope budgeting is an effective way to get your spending under control. If you are still struggling to stop overspending, then starting a spending journal might be the next step to kicking your spending habits.

Budgeting is a very personal choice. Although the cash envelope system isn’t right for everyone, there is a way to budget that will work for you. Consider taking our completely free course to build a budget that works for your lifestyle today.

Also, be sure to follow Clever Girl Finance on Instagram, Facebook, and YouTube for top financial tips and inspiration to achieve your money goals!

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