The Ultimate Guide to the Cash Envelope System

If you aren’t a stranger to the personal finance world you have more than likely heard about the cash envelope system. This method has been around since before I was born and many people often coincide Dave Ramsey with this method.

I am a Dave Ramsey Fan, just an FYI!

Although it’s been around, I often receive questions from my clients asking how to go about using the cash envelope method. I have some that are not using it to its full potential and then there are those that are using it just as it is intended.

So why not just address everything with…

The Ultimate Guide to the Cash Envelope System.

How it Works

You know how when it’s time to implement a new thing and you say well I’ll wait until such and such time.

For example, you know you need to budget so you say “I’ll wait until my next pay, so I can start fresh.”

The great thing about the envelope system is that you can start today. None of that I’ll wait until I get paid unless you literally have no money.

You don’t need a large amount of cash saved up or need to go out and buy some top of the line envelopes.

You can get a pack of envelopes from the dollar store for a buck, better yet you can make your own with a piece of computer paper if you are in a crafting kind of mood.

Categorizing Your Cash

Let’s say you get paid twice a month and you bring in a total take home pay of $1,000. Your grocery budget is $500/month, so when you get paid, you will withdraw $250 in cash and put that into an envelope designated for groceries.

The money in this envelope ONLY is to be used for groceries and nothing else.

So, if you decide to make a quick run to the store after work only to have noticed you have forgotten your envelope, then you need to go home and get it.

This really requires discipline because you may even think “I have my debit card on me I’ll just use that and then replace the money in my account with the money from the envelope.”


Because you won’t remember and you will most likely end up spending more than you would if you had cash.

The thing about carrying cash is that when you go to the grocery store and the total comes to $275 you know that some stuff has to go back because you only have $250.

I know you couldn’t wait to get home to sit back and relax with those cookies you just had to put back but it’s ok.

So gone head and humble yourself and just say “Sorry, I’m going to have to put that back.”

Absolutely, no pulling out that debit card because you feeling ashamed. This is it. You have made up your mind to be better financially so do what’s necessary to get a handle on your money.

I know what you’re thinking and I’ve been there but you’ll be happy that you did it.

You will repeat this process when you get your second pay of the month. That will be your $500 grocery budget for the month.

Repeat this process for all major categories in your budget such as gas, clothing, entertainment, beauty, misc…

What if we have a spur of the moment grocery runs?

Have you ever discovered that you ran out of juice or cheese, but instead of you going you notice it’s about time for your spouse to be headed home so you call them to run to the store real quick?

I do it quite often.

But the problem is I usually have the cash envelopes with me.

If you can see this being a regular occurrence for your family, simply create more than one envelope for your groceries. So out of the $250 that you budget for groceries out of that first pay simply take $50 from there and put it into a separate envelope for your spouse.

Now remember your spouse shouldn’t be trying to go grocery shopping all over again, this is simply when something runs low or is depleted before your next planned shopping trip.

How to create the Cash Envelope System: Step by Step Instructions

If you have read my blog, you know I budget according to our pay frequency. Using the cash envelope method is no exception, so when I sit down to budget weekly, I have my envelopes right there with me.

For us, I budget for getting paid weekly. If you get paid twice a month, then you need to make sure you list your expenses for every two weeks and make sure the envelopes you use correlate to those expenses.

When you have your envelopes make sure you are labeling them and determine how much cash you are going to put in each category before going to the bank.

What about bills?

Bills are the exception. Not many people go to an actual physical location to pay their bills, although my grandmother still does.

If you are with the times, most of your bills like your cell phone, the internet, car, and mortgage are paid online and are usually the same every month.

For these items, you will just leave money in your primary checking account that is utilized to pay bills. You will need to take cash out for everything else.

When listing my expenses I often use a calendar to help put our income and expenses in a better perspective so if I have irregular plans like a date or girls night coming up I can mark it and I will know I will need to include it in my expense list.

Once expenses are figured out, you will go to the bank and take out the amount of cash that is needed to cover the expenses that you have determined you will use cash for.

The Envelopes That I Use

I often recommend Dollar Store plain white envelopes that you can just write the labels on the front.

But now that I’m being a little more creative and actually trying to design my own envelope system I have found these amazing envelopes on Etsy.

The great thing about these is they are not made out of your ordinary computer paper so they are durable and you can use them over and over again.
And what really makes them Amazing is that you can either get envelopes that have a cash log on the front so that way you can track how much you are spending and adding to each envelope or you can just get a label that goes on the front with the cash log that just slides into the envelope.

And on top of that, they come in different colors so you can actually designate a color as a category.

For example, blue is for groceries and yellow for entertainment.

PERFECT right!

How to Succeed

I’m going to be real up front and transparent with you.


It doesn’t matter what kind of budget you use, sticking to it is always the real problem.

You know how most people don’t change for the better until they have hit rock bottom. That’s how many of you are with your finances.

What’s your WHY?

Why do you want to budget?
What will it change?
How will it make you better?

You REALLY REALLY have to want it.

I can sit here and write you how to posts and step by step guides all day long but until you make up your mind it will NEVER HELP.

Here is some advice. You probably already know where your issues lie if you have bad spending habits you know if you splurge at the gas station you know if you are just a bad with money you know.

The first step in overcoming any problem is admitting you have a problem.

So pinpoint them out quickly and address them in your budget.

You can manage your spending by including a portion of into your budget and leave the debit card at home.

If you are used to swiping, it is in your best interest to just leave your card at home, it will help discipline you and cause you to be aware of what you are spending.

Another piece of advice is to ONLY take the envelopes that you will need. If I only plan on going to the grocery store then take only that envelope.

What If I Spend All of the Cash?

The most important thing you can do is practice discipline.

You have to prepare yourself when you decide to use this system that you’re going to make a plan.

Yes, you can jump right in and take your envelope with you and end up spending all the money in one trip. NOW, WHAT?

I’m pretty sure you will run to the debit card.

That’s why it’s important to make a plan for the cash you place in your envelopes. You want to go out great! Make sure you budget for it and allocate a certain amount of your entertainment to you going out, but not all.

I would even suggest that you keep a miscellaneous spending envelope with you so if you do happen to run out of money you will have a little wiggle room.

Just remember you are doing this for a reason. It shouldn’t be an experiment or something to just try. You want to do better with your spending so be serious in making a change but have fun.

Welcome to the future

Everything is done online and many of you may do everything from your shopping to your banking online.

So will the Cash envelope system still work?


You will basically use the envelopes as a point of focus and not so much for carrying actual cash. you will write your specified budget for that specific category on the front and you will add to or deduct base on your spending. Kind of like balancing a checkbook. I don’t remember the last time I’ve done that.

Or if you want to make it a little more realistic and get some fake money.

But ultimately the cash envelope system is designed to keep you AWARE of how you are spending money and when you have been spending money freely all of your life it’s going to take some effort and planning to get out of those bads habits to create better ones.

Don’t sweat it, you got this! I believe in you!

Are you going to start using the envelope system? If you already do how is it going for you?

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