Manage money and be on the road to financial success with a Cash Envelope System {free four pages of printables}! Say goodbye to impulse purchases and hello to saving. This simple system is easy to follow and you’ll be thanking yourself later.
While saving money and sticking to a budget may not seem very glamorous, they are both game-changers! Not only will you feel good once you actually meet your goals, when it comes to finances you will be much less stressed too.
If you find yourself wishing you had more money and tired of living each week waiting on the next paycheck, this money envelope system is for you. Let’s dive in and get started! Be sure to snag my Free Cash Envelope Templates!
✉️ Why Cash Envelopes
Pay Down Debt – Using money envelopes is a great way to pay down debt. If you are swimming in bills, you aren’t alone. When you use these, you know exactly how much is going to be spent on debt each month.
No Fees – If you stick with your cash envelope budget, you don’t have to worry about overdraft fees anymore! You simply use the money in each envelope for its particular category and you can’t go wrong.
Better Understanding Of Money – It’s easy to swipe a card to pay for stuff and have no connection or understanding of the immediate impact. But when you are using cash, you can see it, feel it and even smell it. So, it’s a lot harder to just blow it all because you start to realize how hard you worked for that money.
You Are In Control – You take control back of your finances by tracking and knowing what each dollar goes to. No more mindless spending and impulse purchases.
🙋 How to Use
This system uses envelopes filled with cash to divide it all out into budget categories where you typically spend your money.
Let’s give an example. Add $400 in the grocery envelope, $100 in the gas envelope and $20 in the clothing envelope, if those are your normal monthly spending in those categories. Throughout the month, if you need groceries, you pull the cash from that envelope and use it instead of charging. It is really THAT simple!
Don’t be fooled! As simple as this is, you will find it eye opening, especially as you first start it.
Step One: Create a budget. If you haven’t done that before, this is the time to start. You will not really know the right amount of money to go into each envelope if you don’t have any idea of how much you spend to start.
The first few months will need to be fluid. There will be ups and downs as you learn how to put money in each category.
Step Two: Go through all of your past bank and credit card statements to develop the categories. Unfortunately, if you have been going OVER what you bring in each month, you will have to take the time to cut back to only spend what you bring in.
Step Three: Print, cut out, and glue the envelopes. Write down the categories based on what you learned in Step Two.
If you have had a rocky past with your finances, pat yourself on the back as you are starting to make that positive change.
Step Four: Adjust, adjust, adjust. This will take some time as you learn how you are spending money based on your new budget and envelopes. It won’t be perfect the first few rounds – and that is ok. You’re learning how to live with a cash based system which is a huge accomplishment.
Advantages of Using Envelopes
There are a lot of advantages of using the envelopes.
- On Track for Budget. It keeps you on track for your budget as you are only using the money from each envelope to pay for what you need each pay period.
- No Interest Charges. You aren’t using a credit card which will incur interest charges each month if you don’t pay it off.
- No Overdraft Fees. Your bank will no longer charge you overdraft fees (up to $35 each time it happens!) as you will only be spending money out of the envelopes, not writing checks that could allow an “oops” to happen.
- No Overspending. Since you are only spending what is in the current envelopes, the possibility to overspend is taken out of the equation.
Disadvantages of Using Envelopes
- Need the Entire Family On Board to Accomplish. It’s tough to do this if the entire family is not loving the envelope system. This won’t work if one spouse is doing the envelopes and one spouse is still debiting coffees everyday. Everyone has to be ready to work the system, including your kids. We have a kids envelope system as well so they can be on board.
- Go to the Bank A Lot. That is to fill up your envelopes. Remember this is a cash based system and so each pay period you will have to go withdraw the money out and divide it up in the envelopes.
- Fear of Losing Money. This is a big one and very real if you are the type of person that loses or misplaces things. If you misplace the envelopes, there is no getting that money back at all. We kept ours in a basket on top of the refrigerator which made it easy to find.
- Mixing Shopping Trips. A common argument is when you buy three items from a store that fall into three different envelopes it’s hard to understand which envelopes to remove the money from. Until you fully understand how to do this, divide the shopping trip into each category by making three separate purchases. This will eliminate any confusion, and will help keep you on your way!
- Forces You to Plan. Not everyone likes the idea that they have to plan ahead for the pay period or month for how to divide up your pay for each envelope.
- Emergencies. Things happen. We all get unexpected bills, repairs, expensive school projects, etc. It sucks! When you are dialed in to the envelope system, it may not leave a lot of room for extras. We created a separate envelope and labeled it Emergency Funds. Each pay check, we added a few dollars to it to help absorb those unexpected costs.
Cash Envelope System Categories
The first step to a cash envelope system is figuring out what categories or budget categories you need. There aren’t any wrong answers, so be creative by using categories that will actually meet your needs and desires. Here are some popular ideas to consider:
Groceries
Setting a strict budget on groceries is a must. It will give you a chance to get a little creative with your meal planning and it’s a great spot to save money too. Choose a grocery budget that works for your family.
Dining Out
If eating out is something you enjoy and don’t want to give up, just add some money to an envelope! This way you can still go through a drive-thru here and there, but there isn’t the mindless spending that many people do.
Gifts
When the kids get invited to birthday parties or you have a neighbor you want to buy a gift for, it’s nice to have money set aside. You don’t need to add a lot of money to this envelope in most cases. $10 – $25 is a good place to start. Get creative and consider making gifts to save money too.
Beauty
Getting hair cuts, your nails manicured, or buying beauty products are a few things that should be considered when adding money to this envelope. They add up quickly, so keep that in mind when you are budgeting for beauty products.
Clothing & Shoes
Having cash on hand for clothing and shoes is a good idea, especially if you have kids. They grow so fast and will often need different shoes for each sport or event they are involved in.
Debt
One of the biggest reasons to have a money envelope system is to pay off debt. The more you add to this envelope the sooner the debts will be paid. Just be mindful so you don’t come up short in other areas.
Tip! If we have any money left over at the end of the month from the other categories, we move everything into the debt envelope. Even a few cents per week will make a dent in the debt.
Vehicle Maintenance & Gas
The truth is that owning a vehicle can be expensive! You’ll need money for fuel, oil changes, tire rotations, plus anything else that comes up. Properly maintaining your vehicles will help prevent bigger problems down the road.
Savings
This is an important category because you should be saving for a rainy day and all those big purchases you are dreaming about. You need to have money in savings so you can be prepared if your hot water heater goes out, or someone ends up sick and unable to work. You just never know what will come up and cause you to need savings.
Vacation
Whether you take a big vacation every year or you go on several mini-vacations close to home, you will need money. Consider lodging, food, and travel expenses when saving for vacations.
Entertainment
It’s a good idea to allot money for entertainment such as going to the movies, festivals, concerts, and other fun outings. Anything you like to do for fun should be considered for this category.
Miscellaneious
It’s a great idea to have an envelope that is strictly for anything you didn’t think of in the other categories. Otherwise, you may find yourself pulling money from an envelope that doesn’t make sense because something popped up you didn’t plan for.
The possibilities for categories go on and on! The ones mentioned are to get your imagination going and for you to start planning your envelopes.
FAQ
As great as it is, there are a few cons to consider! If you carry all the cash with you everywhere you go, it does put you at risk for theft. You’ll need to be mindful of the cash and keep it out of sight so no one sees you have it.
In addition to theft, there is a chance you could lose the money. If you tend to lose things frequently including your purse or wallet, this system may not be a good choice for you.
Anyone can benefit from this budgeting system. It’s particularly good for people who make a lot of impulse purchases and those who have a hard time sticking to a budget.
Young adults benefit by learning how to categorize their money into pockets and stay within the designated amount.
This will help you keep from overspending in general. If the money is not in the envelope, you can’t spend it. So if you already spent all the money in the gift envelope, you need to wait until next month or next pay period when you re-deposit money into the envelopes to buy the gift. This keeps you from charging on credit cards.
The easiest way to carry the envelopes is putting them into a wallet that is meant for cash envelopes. Or use an accordion style system that allows you to add labels to each category.
Envelopes will rip and tear if you don’t use an accordion system, which is why I love to have the freebie printables so you can print out again and again.
Every pay period you will remove cash and divide it up based on the budget you created using the printables.
Create an online purchases envelope and when you charge something online, immediately remove the cash from your envelope to pay the credit card you just used. Don’t wait to remove the money.
At the beginning, this will probably happen in a couple categories and then it will need to be adjusted.
After a couple months, you should have your categories pretty well lined up. If it happens at that point, try NOT to pull from other envelopes. The key is to live within the categories you set up. If you purchased things that can be returned, do that. If you ran out of grocery money, do the freezer inventory and eat out of the pantry and freezer.
Use the No Spend Challenge to work on ways to not spend for the remainder of the month. There are a lot of tips on meal planning and how to enjoy your time.
If your groceries are pulling out too much money, do a grocery challenge and find out which store is the cheapest to shop at.
Just like everything, start out small and work your way up. You are making a huge lifestyle change and it’s best to see the successes of your efforts instead of giving up because you bit off more than you can chew.
🖨️ Printing
Save them to your computer and then print out which ones you need. This is a great opportunity to get the kids involved to cut out, fold and glue the envelopes together!
How to Grab Them?
That’s easy! Enter your name and email address in the form below and you will be sent right to them!
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