How To Save Money: Using Cash Envelopes

How To Save Money: Using Cash Envelopes

Stacks o’ Cash (Envelopes)

Have you ever gotten to the end of the month and realized you spent WAY too much money on food? Or maybe you can’t seem to find where your paycheck went? I’ve been there more times than I would like to admit, and really, until I started budgeting every month, that was the norm. I would drop a good $600 a month on fast food. I would look at my bank account and make sure I had just enough money to cover the bills. And I was always broke (well, except for the short period of time when I was ballin’ with my $100,000).

Enter: Dave Ramsey

Now, I know that there are people who hate Dave Ramsey more than sleeping in a bed full of spiders (I know, I shivered just typing that), and there are those who love Dave Ramsey more than their grandmother. Whatever your stance on him, no one can deny that he is one of the world’s biggest evangelists of the “cash envelope method”. As Michelle and I started on our budgeting journey before marriage, after listening to Dave Ramsey’s “Total Money Makeover”, one of the things we discussed was using credit cards vs. using cash. We decided to start out using the cash envelope method. We now put everything on our rewards credit cards, but back then cash worked for us.

Here’s a step-by-step process on using cash envelopes:

  1. Get Cash
  2. Put in Envelopes
  3. ???????
  4. Profit!!!

All kidding aside, using cash envelopes takes all of the guess work out of managing your day-to-day discretionary spending. Michelle and I would first sit down and write out all the categories that weren’t monthly bills. We would then make an envelope for each category (our categories were; Food, Gas, Date, Spending Cash, Giving, House) and fill each envelope with the budgeted amount. We did this at the beginning of each month, but you can also just fill them whenever you get paid if you are not currently a month ahead.

How To Save Money Using Cash Envelopes

Throughout the month, we would spend from these envelopes until the money was gone. And here’s the kicker…Once the money is gone, WE WOULD JUST STOP SPENDING! Isn’t that magical? Now, you might say, “but what’s to stop you from raiding your bank account to spend more cash money on 60 boxes of Tic Tacs?” I’m glad you asked.

At the beginning of each month, we would create our budget plan, projecting our upcoming spending. Then, the first thing we would do is transfer any amount that looked like “extra money” to our savings account. That way, only the money that we were going to use sat in our checking account. Think of it like making an entire batch of cookies for your entire neighborhood, but you won’t be giving it to them until Christmas. You wouldn’t just leave them on your kitchen counter (would you?), otherwise, when Christmas rolls around, you won’t have any cookies to give and you’ll be fat.

Sometimes, our money would run out, and we would end up digging through the kitchen to find something to eat for dinner at the end of the month, but we stuck to our budget! After a few months, we got really good at managing our food budget, specifically, and could stick to our $240 a month budget with ease. We managed to get by and NOT MAKE EXCUSES for why we needed to spend money at the mall, or eat out, or buy some new décor for the apartment. This allowed us to not only survive making $14 an hour, but to also save $300-$500 a month and aggressively start paying down our student loans.

Why Don’t You Use Cash Envelopes?

I only know a very few people that use cash envelopes, so statistically most people reading this don’t. My question is, why not? It’s a great way to help you stick to your budget EVERY MONTH and really gives you clarity on exactly where all those pesky dollars are ending up. Now, I will say that we moved to rewards credit cards, but only after a few years of cash envelopes to help develop good budgeting habits. I recommend everyone who is starting a budget start with this method and build some awesome money skills that will pay dividends for years to come.

Comments: Have you used cash envelopes? How well did they work? If not, see above 🙂


  1. We’ve used the cash system for I can’t remember how long now. We’ve been living by a budget for 10 years now, so it’s not been that long but not very far off from that. We love it and really helps keep the spending in check.
    John S @ Frugal Rules recently posted..Giveaway: Four Simple Ways to Save Money on GroceriesMy Profile

  2. I am really lucky and have never had budget issues so I have never used this method. I totally get it though and I bet it really does work wonders for those who need it.
    Lance @ Money Life and More recently posted..Interview with Myself: “Retirement Is Possible”My Profile

    • I want my kids to understand cash, but more that credit cards, debit cards and cash are all the same, and should be treated as such. Sounds like you learned that early! That’s awesome 🙂

  3. We have tried it, but we recently stopped. We need to get back on the cash wagon! 🙂
    Michelle recently posted..Grocery Tips Giveaway and $1,436 in Extra IncomeMy Profile

  4. The cash envelope system was the primary thing that changed our financial situation. It was so liberating knowing that if we stuck to the cash we outlined in our budget, then the rest of it would go smoothly and there would be no issue of paying any bills. We continue to use the cash envelope system and I can’t ever see a time where we’d go away from it.
    Jason recently posted..The Best Ways to Save on Groceries (and a $100 Giveaway)My Profile

    • Jason, I’m in the same boat. Cash envelopes really gave us a straight and narrow path to follow, and we found it SO EASY to achieve all of our goals and not “lose” our paychecks. ice work on sticking with it, it’s a great system.

  5. I don’t use this method because I purchase practically everything with my credit card, but for those people who have trouble managing their spending with a credit card, the envelope system can be a great option!
    Gen Y Finance Journey recently posted..Weight Loss Milestone ReachedMy Profile

  6. Me and cash don’t work well together. I spend money and completely lose track of what I spent it on.
    Marissa @ Thirtysixmonths recently posted..Things I love Giveaway! $50 ITunes or Amazon giftcard.My Profile

  7. As far as loving/hating Dave Ramsey, I say whatever works is a good thing! I don’t criticize any technique that helps a person make better money decisions.

    We’ve never used physical envelopes, but we do use ‘virtual envelopes.’ Using a piece of personal finance software, we budget by expense category each month, track our spending, and keep an eye on where we are over the course of the month. When we’ve spent the budget in one of our virtual envelopes, we stop spending unless it’s an emergency. It works!
    Kurt @ Money Counselor recently posted..Is Facebook Making You Poor and Fat?My Profile

  8. For awhile we used the electronic version of this: MVelopes. Lately, I’ve read many people who’ve been frustrated by MVelopes (although I’ve moved on) so I can’t vouch for the program anymore. However, at the time, it worked awesome.
    AverageJoe recently posted..My Favorite Christmas Moment–Learning the Value of ExerciseMy Profile

  9. I’ve never used cash envelopes since I like to use my credit card as much as possible and I don’t budget my money. It is difficult for me to budget right now since my income and expenses seem to vary quite a bit each month. Rather than make a budget I plan to just save a certain percentage of my income every month.
    Andy Hough recently posted..Saving Money on Groceries – $100 GiveawayMy Profile

  10. I don’t use the cash envelope system because-as you know-I am obsessed with credit card rewards!!!!!!!!!! But if it works then I say go for it!
    Holly@ClubThrifty recently posted..My Favorite Christmas MemoriesMy Profile

    • I love them too! Cash really helped straighten me out, and is the best way to get on track when starting out. I learned a lot of good habits that help me stick to my budget to this day!

  11. I’ve never done the cash envelope thing, but I’ve never felt the need to live on cash to budget better. I hate cash really. I do debit all the way, but I pretty much check my balance daily.
    Mo’ Money Mo’ Houses recently posted..How I Save Money Grocery ShoppingMy Profile

    • Do you budget ahead for all your spending and then stick to that during the month? I only ask because I used to track and check all my spending as well, but I was only looking at where the money went, not telling it where to go.

  12. It’s pretty simple as to why I don’t use cash envelopes: I like my cash back rewards too much.
    DC @ Young Adult Money recently posted..Saving Money Grocery Shopping – $100 Giveaway!My Profile

  13. But I thought step 3 was “PROFIT!!!” =)
    Mrs PoP @ Planting Our Pennies recently posted..PoP Balance Sheet – November 2012My Profile

  14. This was worth trying for a couple months, but we couldn’t do it — largely because we make too many online purchases. A decent amount of Eric’s personal spending money goes to iTunes/App Store purchases, and we also use Amazon frequently enough for various budget categories to make cash envelopes a problem. We kept taking out the exact right amount of cash, but then wanting to buy things online instead. It became a mess.

    We’ve never had an excessive spending or consumer debt problem, so our cards plus MANUAL budgeting software (we use YNAB) work well for us.
    Brynna recently posted..Never.My Profile

    • AHHH, I want to try YNAB out, but can’t fork out $$$ when there is Excel and Mint out there for free (to me). But, maybe I’ll contact them and see if I can do a review 🙂

      How do you like it?

      • I really like YNAB. I haven’t sprung for the new version, since the first one was an investment in itself. The cloud sync is extremely tempting, but it’s a lot of money just for that upgrade! Mint has cool features, but I don’t care for it because I don’t pay attention to where the money goes if it’s automatically uploaded and categorized. The variable income/expense tracking in YNAB is fantastic — it would totally replace any of your separate savings bucket tracking.
        Brynna recently posted..9,000 words.My Profile

  15. Jason Clayton | frugal habits says:

    Whenever I’m discussing money with someone and they are struggling to budget (or have enough $$ at the end of the month) I always, always, always, bring up using cash envelopes. It really is a life saver for many and makes it so easy to budget your money. In many ways it takes all the thought out of it.
    Jason Clayton | frugal habits recently posted..7 ways to enjoy Traveling, have an amazing Vacation, and still be FrugalMy Profile

    • It truly is the simplest way to ensure you stick to the budget. I love to introduce budgeting by way of cash envelopes for newlyweds and first time budgeters. Heck, it’s even great to go cash for a month to keep yourself in check sometimes as well.

  16. I understand the logic – I’m just not sure that would work for me because random expenses always seem to keep popping up! Right now I’m working on tracking our expenses and looking at it from that angle – but nothing ever seems consistent!

    Right now around the holidays our budget is all over the place too!
    Jon recently posted..Free alternatives to cable TVMy Profile

    • I try and gruop those random expenses in my general savings buckets (stuff like gifts, birthdays, vacations, Christmas, car maintenance, home maitenance, etc…). It helps catch and plan for a lot of those. But I do agree, sometimes stuff just comes up and you have to deal with it.

  17. I’m another one of those people that has never had to budget. I simply don’t buy anything and my expenses have always been well below what I make. That being said, I carry more cash around with me than anyone I know (usually several hundred dollars — a holdover when I lived in Japan and all transactions were done is cash).
    jeffrey recently posted..Overcoming Financial ProcrastinationMy Profile

    • Are you at all worried that some money is escaping you every month and going toward things that may not be a priority? I think it’s probably much easier when you’re making MUCH MORE than you spend, but I love telling all my money where to go, and make a discipline out of making it listen to me 🙂

  18. I don’t use the envelope system, but I do track every single penny I spend/save/invest in a detailed Excel workbook. Doing so keeps me on the straight & narrow!
    The Happy Homeowner recently posted..120 Holiday Gifts Under $20My Profile

  19. Just can’t do the cash envelopes for everything, but my husband and I did take out cash this month for our personal spending. When it’s gone, it’s gone. I value it so much I am having a hard time spending any of it, so maybe that’s the point? Most everything else is automated and you’ll be happy to know we paid off the credit card debt (forever) two weeks ago! Flippin sweet!
    Kim@Eyesonthedollar recently posted..5 Guaranteed Ways to Save Money on Groceries and a $100 Giveaway!My Profile

    • Same here. We swicthed to cash for personal spending, because that’s the one place where we could just keep going and going!

      and HOLY COW!!! No credit card debt ever again, huh? How does it feel?

  20. Using cash envelopes is practical. It is a good way to save money. Besides, it reminds us to be practical spenders. This post is helpful to those who wish to save consistently.

  21. I have thought about using this method before, but I am a very paranoid person when it comes to cash. To easy to lose or have stolen. At least I have recourse if someone gets a hold of my credit/debit card. I am really good with my budget on my cards, so I have never needed to use the cash system, but I have thought about it.
    Grayson @ Debt Roundup recently posted..Students: How to Finish College with No DebtMy Profile

    • Do you live in a rough neighborhood? Just wondering, because where I’m at, never been worried about being robbed.

      And as I figured, most of the finance types around here rock at budgets, so cash envelopes were never needed to cut down on spending. But it is a great checkpoint if you switch over for a month.

  22. While I understand the concept of this, and I know my parents used it, we only carry a small amount of cash on us and use one credit card that offers rewards. With the budget that we created this year I keep track of every thing that goes on that card and pay it on the first of the month, as well as make additional payments on it to pay off our old debt.

    • We track everyone on Excel and use a single card as well. I really like cash envelopes because they helped us build great frugal habits and once we switched, it didn’t make a difference in our spending.

  23. The cash envelope works, because it’s visual.. you can see where your money is going and how much you have left every time you use it. When we use credit cards, we see nothing.. and before you know it you’re broke. It’s a great system, sometimes we just need to go back to the past to the good ol’ days.

    • I love how simple it is, no guessing. Though I do input my spending in my budget a few times a week, and it sorts into categories and totals them, so I do see the spending in real time. But the difference is that you DON’T OVERSPEND when using cash envelopes. It requires a bit of effort to do that. With credit cards, it is MUCH easier.


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