How to Use Cash Envelopes

How to Use Cash Envelopes to Stay on Budget

In today’s post I am going to show you How to Use Cash Envelopes To Stay on Budget and save more money as you journey the road to Financial Independence. Using cash envelopes was one of the ways we gained control of our spending and found room in our budget to crush our money goals!

To start using a cash envelope system you really only need two things; your budget and your envelopes. Your monthly budget will tell you how much money you have allocated to your discretionary spending categories. These are categories such as groceries, personal spending, dining out, or any other category where you prefer to monitor your spending and stay on budget by using cash.

Each category will have it’s own envelope and is what you will take with you when it’s time to make purchases. Once the money in your envelope is gone – it’s time to stop spending in that category and wait until the next allocation of funds in your budget. This is how envelopes help you exercise discipline with your spending and save more money.

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When we began our Financial Independence journey in early 2017, we were in 1 MILLION DOLLARS OF DEBT, our spending was out of control, we were living paycheck to paycheck and filled with hopelessness about our financial future. We lacked discipline.

Using a budget and significantly decreasing our spending were the two critical actions we took to turn things around. The area where we had the biggest change was in our discretionary spending. Using cash envelopes helped us gain control of our discretionary spending, it also created a better awareness of how we were spending our money.

What I would like to share with you in greater detail is why using an envelope system is important, how to decide what goes into your envelopes, the pros and cons of using an envelope system and, finally, some tips to make your experience using cash envelopes a success!

5 Important Reasons to Use a Cash Envelope System

If you are still not sure about converting to using cash, here are a few reasons why you give it a try.

  1. Studies show people spend more money when they use credit and debit cards
  2. It hurts to spend cash
  3. Using cash envelopes develops discipline
  4. Cash envelopes force intentionality with respect to your spending
  5. You will stay on budget!

How to Start Using Cash Envelopes

You might be a little unsure or overwhelmed about where to begin. What will help you is to follow these steps in order. Soon these will become second nature and you will be a cash envelope pro.


Your very first step is to create your monthly budget. If you already use a budget, woo hoo! you are already ahead of the game. If you don’t have one, we have a template available for you in our download library, which you can access via the link above or the sign-up form below.

We prefer to use a zero-based budget (we assign every dollar a job every month) and budget by paycheck as opposed to lumping everything in one month all together.


A good portion of your budget will not be paid with cash – these are your non-discretionary expenses. The are likely paid with auto-debit or online. Your non-discretionary spending are your fixed expenses like rent or a mortgage, utilities, insurance and debt payments.

Cash categories are typically used for discretionary spending like:

  • Groceries
  • Fuel
  • Beauty
  • Dining Out
  • Recreation
  • Personal Spending
  • Entertainment


One of the reasons you may have decided to begin using a cash envelope system is that you are trying to curb your spending and save money.

I recommend clients review the last three months of their spending to see which areas they are over spending in the most.

With this information, you can decide which areas to cut and come up with a target number for your cash spending. Any savings you have created by reducing these expenses can now go towards savings, investing and/or debt payoff.

Use Cash Envelopes


What type of envelope system you use is entirely up to you. You may decide to purchase a wallet-type system, like the one we have pictured below, which is super-functional and under $30.

Other options are printable envelopes like those you might find on ETSY, use a coupon organizer (you can typically fin these at the dollar store), or simply use your own office envelopes with your categories written on the outside. It doesn’t have to be complicated or cost you anything when setting up your cash envelope system.


Next, you will go to the bank and get your cash. It might be easier to get cash out of the ATM, but I recommend going inside so you can get smaller bills for tip money or smaller purchases.

Your budget and paydays will dictate when you get your cash out and how much you get out.


This tool for cutting down your expenses will not work if you don’t use it. Your envelopes need to go with you every time you are shopping or getting services that are meant for your cash. I have a friend who was a dedicated cash envelope user; he would turn around and go get his cash envelope if he left the house with out it! It was that important to him to stick to his cash budget.

We have confidence in you and know that once you begin using cash envelopes you will see AMAZING progress achieving your financial goals!


Visually limits your spending. You know when your money is gone.If its lost or stolen, it’s gone
Cuts down on impulse spendingHave to make a trip to the bank
Forced discipline and intentionality with moneyExtra step if you are tracking – must enter manually
Less entries into your registerOnline shopping and ordering uses a card


Don’t steal from other envelopes. This is an exercise in discipline. If you have spent all of your grocery money – you don’t take extra from your fuel envelope. This sets you up for failure. If, however, you end up with money left at the end of your spending period, then you can use it in a number of ways.

  1. save it
  2. put it towards debt
  3. treat yourself
  4. carry it forward
  5. add it to next months spending

Remember your budget is fluid. Since this is a new experience for you, it may take a little while to get your categories just right. If you find you are running out of money by week three of the month and you have done everything else right, you may not be giving yourself enough cash in that category. The opposite is true if you always have money left over – you can give yourself less next time. Your income and expenses may change periodically – so do not be frustrated if you have to experiment to see what works.

Keep envelopes accessible. If you have a spouse or a partner, then make sure they either have possession of their own envelopes or that you keep all of the envelopes accessible. You don’t want to derail your progress when one of you winds up needing to buy something but cannot get to your cash.

Don’t freak out when your checking account balance is low. Particularly if you are using a zero-based budget, where every dollar is given a task, you will likely not carry large balances in your checking account. This is OK. This is how a zero-based budget is supposed to work. But it also means it becomes imperative to stay on budget – we don’t want to cause any overdrafts; those can get very expensive and derail your progress.

Deposit your cash if you need to. If there is an instance where you needed to make an online or debt card purchase that should have been paid for out of your envelope, take the cash out of your wallet and deposit in the bank so you don’t overspend or cause an overdraft.

You can still track, if you want to. If you are like me, you track your expenses. There are several APPS out there that help you track your spending. For me, it keeps me accountable and helps me see areas I may need to tweak right away. Most of these APPS allow you to split transactions. You can edit your cash withdrawal entry to more accurately enter how the cash was allocated.

For instance if you withdrew $220.00, $120.00 will get tagged as Groceries, $50.00 as personal spending and the remaining $50.00 as fuel.

Is it safe to carry so much cash? Debt and credit cards typically offer fraud protection. However, you can mitigate any risk from carrying so much cash. The best way is to only take the envelope you are need when you need to. For instance, if you are doing grocery shopping, take only that envelope and leave the rest at home. This may take a little extra forethought on your part – but if safety is a concern for you – it is probably worth it to take the extra precaution.

We hope you have found this guide to cash envelopes helpful! Please let us know how it goes for you.

Love and prosperity,

Wendy and Curtis

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2 thoughts on “How to Use Cash Envelopes to Stay on Budget”

  1. Pingback: The Secret to Reaching to Financial Independence | House of FI - Financial Independence for Families

  2. Pingback: HOW TO HAVE A DEBT FREE CHRISTMAS | House of FI - Financial Independence for Families

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