How to Budget With the Cash Envelope System (2024)

Want to keep more of your hard-earned money each month? Try budgeting with cash envelopes!

Ramsey's cash envelope system is nothing new—it’s been around for decades. But some people still don’t know exactly how or why it works. Let me show you! (And if you hang with me until the end, I’ll tell you how to make using cash envelopes more fashionable than ever.)

What Is the CashEnvelope System?

The cash envelope system is a way to track exactly how much money you have in each budget line for the month by keeping your cash tucked away in labeled envelopes.Throughout the month, you can just peek inside an envelope to see what’s left to spend—because you’ll see the literal amount in cash. Right there. How easy is that?

If you’re constantly going overboard in a certain area of your budget (hello, food!), then take out the exact amount of cash you’ve budgeted for that category and stick it in an envelope. When you shop, use what’s in your cash envelope. Nothing more. Once the money is gone, it’s gone—so this will force you to stop overspending and help you achieve your money goals faster.

How the Cash Envelope System Works

One of the reasons we overspend is because there’s nothing telling us when to stop. That’s where your cash envelopes come in. They’re a great tool that’ll help you stick to your budget. Here’s how to use them:

1. Make a budget.

First things first, you need to make a budget. List out your income (everything coming in for the month), and then list out all your expenses. You’re aiming for a zero-based budget—meaning income minus expenses equals zero . . . meaning you’re giving every dollar a job to do. If you want to keep up with this part in an on-the-go budgeting app, check out EveryDollar. It’s free!

2. Think of the budget lines that need a cash envelope.

When you’re making your budget, think hard about those lines that tend to become budget busters. You know, the ones you tend to overspend in month after month. These are the perfect spots to use the envelope system. Here are a few I find most helpful to make envelopes for:

• Groceries
• Restaurants
• Gas
• Medicine/pharmacy
• Hair care/makeup
• Car maintenance
• Personal
• Entertainment
• Gifts

3. Create and fill cash envelopes for those budget lines.

Let’s say you’ve budgeted $700 a month for groceries and you get paid twice a month. When you get your first paycheck of the month, take out $350 from your bank account and put the cash in an envelope. On that envelope, write out“Groceries.” When you get your second paycheck, do the same thing again and put that $350 in the envelope. That’s your $700 food budget for the month.

Take the envelope with you when you go to the grocery store. And remember, if you shop every week and you spend $300 that first week, well, you’ve just got $50 left until your next paycheck. I know, I know—it’s hard. But it’s better than constantly overspending.

And on the flip side, if you get really thrifty all month by meal planning, shopping sales and couponing—and you don’t spend all of the money from the groceries envelope that month—that’s awesome! Put that extra money to work on your current Baby Step (aka the proven way to save money, pay off debt, and build wealth). I’ll talk more about this at the end.

Here’s the key to making the cash envelope system actually work: During the month, no money—and I meanzero money—comes out of that groceriesenvelopeexceptto pay for food at the grocery store. And if you go food shopping and leave the envelope at home by mistake, turn your car back around. You can’t just sort of use the envelopes and expect them to work.

4. Spend only what you’ve put in each cash envelope.

Don’t forget: When your money’s gone, it’s gone!If you want to go to the store but don’t have enough money, raid the fridge for leftovers. Or do a pantry challenge by digging through your pantry to see what you can find to make dinner without having to hit the grocery store. Using the cash envelope system is a great way to really get intentional about yourspending habits.

Advantages of Using the Cash Envelope System

• It keeps you on track.
• It enforces discipline.
• It holds you accountable.
• It makes it pretty hard to overspend.

Disadvantages of Using the Cash Envelope System

• You have to get cash out of your bank account.
• You have to juggle cash.
• You have to spend only what you have.
• Wait—that last one just seems like a challenging advantage.

Is the Envelope System the Same as Cash Stuffing?

If you’re on TikTok or Instagram, you might have seen a trend calledcash stuffing. Cash stuffing is a process of splitting up your cash each month into envelopes assigned to a line of your budget. Does that sound familiar? Yep! Cash stuffing is the same thing as the cash envelope system.

Maybe social media thought cash stuffing was a more exciting way to describe it all, but cash stuffing works the same way as the envelope system: At the beginning of the month, you’re taking out cash from your paycheck to fill your labeled envelopes. For example, if you’ve budgeted $35 toward your“Beauty”budget line, you’d stuff $35 of cash into that cash envelope.

Different name. Same technique. Honestly, I’m just glad there’s a social media trend that helps people keep from overspending. Just know that if you jumped on the cash-stuffing bandwagon, you’re using the cash envelope system. (It’s all envelope budgeting!) And you’re working on being intentional with your spending. Bravo!

What if I Pay Some of My Expenses Online?

Here’s the thing with the envelope budgeting system: It works better when you’re actually physically walking into a store to make a purchase. Shopping at the grocery store, going out to eat, getting a haircut or oil change—these are all times when using the cash envelope system works really well.

You can still use cash envelopes for online purchases, but it does get a little trickier. Write the amount you’ve budgeted for on the outside of the envelope, and don’t spend more online than the amount you’ve jotted down. Keep track of how much you’ve spent, and write it on the back of the envelope, just like if you were balancing a checkbook.

What if I Run Out of Money in My Cash Envelope?

Be careful not to borrow from the other cash envelopes. When it comes to the envelope system, it can be really tempting to shuffle cash from one line item to fund another.

Let’s say you used up all the money in your restaurants envelope—don’t be surprised if some inner voice tells you to grab your clothing envelope.

Remember, the whole purpose of using cash envelopes is to control your spending and help you stick to your budget.

If you run out of restaurant money, eat leftovers instead of going out. If you see your gas money slipping away faster than you planned, it’s time to use some gas saving tips—like limiting your trips or carpooling to work. Find creative ways to make your money stretch when the envelopes are getting low.

And don’t just spend, spend, spend until your cash envelope is empty. Pay attention to how much is left! This will help you spread out your spending and keep you from getting to the end of the envelope before the end of the month.

What About Emergencies?

If you have a crisis come up in the middle of the month or something happens and you have absolutely no choice but to shift your cash envelopes around, figure out how to adjust your budget.

If you’re married, talk with your spouse and decide together on the best course of action. Both of you need to be involved—it’s a joint decision. Or if you’re single, run the amounts by your accountability partner to get their input.Don’t jump into pulling from your emergency fund immediately, and don’t drain other envelopes for every surprise expense.

What if I Have Money Left in My Cash Envelope at the End of the Month?

I mentioned this super briefly before. But if you’ve got money left in an envelope at the end of the month, congratulations! You came in under budget. That’s the best feeling in the world. And it’s okay to celebrate too . . . with a budget-friendly reward. You should totally celebrate those little wins along the way!

Then, put that extra money to work. If you don’t have Baby Step 1 set up (a starter emergency fund of $1,000), get on it! And if you’re onBaby Step 2 and paying off your debt, take that extra cash and put it toward yourdebt snowball. Every little bit helps.

Remember,cash envelopes are powerful weapons in the fight against overspending. They can help you manage your money better than you ever have. Put the cash envelope system to work for you, and get intentional about how you’re spending your money.

Take Your Cash Envelopes to the Next Level

Okay, guys, since we’re talking about the cash envelope system, I want to tell you about the wallet I created! It’s beautifully designed and will empower you to use your cash envelopes and budget the way you want to.

Here are some of my favorite things about the wallet:

• Four interior envelopes for cash
• Ten slots for debit cards and gift cards
• A zippered pouch for coins, coupons or receipts
• A high-quality genuine leather exterior (aka it looks good and it’s built to last)
• Wristlet with zip-top closure
• Multiple colors (black, camel, metallic blush and more!)

And honestly, my most favorite part is the partnership with JOYN that makes these wallets. JOYN provides fair-trade jobs to vulnerable locals in India so they can have dignity, livelihood and a future.

So, while you’re saving money and working to change your family tree, so is each person handmaking this wallet. As much as I believe using these wallets can change your life for the better, I know it will do that for the people making them as well.Get yours today!

And remember: Whether you call it the cash envelope system or cash stuffing, this method is all about being intentional with your spending so you can start creating a life you love. It’s totally worth it, and you can totally do it!

Rachel Cruze is a #1New York Timesbestselling author, financial expert, and host ofThe Rachel Cruze Show. Rachel writes and speaks on personal finances, budgeting, investing and money trends. As a co-host of The Ramsey Show, America’s second-largest talk radio show, Rachel reaches millions of weekly listeners with her personal finance advice. She has appeared on Good Morning America and Fox News and has been featured in publications such as Time, Real Simpleand Women’s Health magazines. Through her shows, books, syndicated columns and speaking events, Rachel shares fun, practical ways to take control of your money and create a life you love. Learn More.