The Cash Envelope System: The Ultimate Guide To Budgeting

The Ultimate Guide To The Cash Envelope System

Do you want to know our secret to paying off more than $30,000 in student loans? Or, better yet, how we were able to pay off our student loans before I even graduated with my 4-year degree.

Yea, you read that right. We were able to pay off my student loans and become debt free before I even graduated.  On top of that, we were able to build our retirement accounts to over $100,000! All in our mid 20’s on a single income. 

Well, we didn’t do it by winning the lottery, that’s for sure….

If you’ve ever tried budgeting, then you’ve probably heard of the cash money envelope system. This system has been around for a long time yet a lot of people still don’t know how it works.

Let me tell you, this system is your golden ticket to building your savings. This envelope system works if you’re simply trying to save for a short period of time or if you’re trying to tackle your out of control spending habits for the long run.

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What Is The Cash Envelope System

The cash envelope system is one of the most simple budget systems to use but that doesn’t make it easy. Then again, when is saving money ever easy? This system is super straightforward and with a little practice, it will soon become second nature.

If you are brand new to budgeting you should check out our 5 day Organize Your Finances Challenge. It’s a totally free 5-day course that will give you all the tools you need to create a solid budget.

How The Envelope System Works

What you are going to love most about this budgeting system is that it’s so easy to start and you can literally start right now if you want to. If you don’t know how to calculate your expenses check out our step-by-step guide in our free budgeting course.

Once you figure out your expenses are for the month you will know how much money you will have left over for your each of your envelopes. Each envelope is a different category for each spending need.

For example, I budget $500 a month for groceries for my family of 4. I go to the atm twice a month. So at the beginning of the month, I pull out $250 to put in my “grocery” cash envelope. Do the same with each category of spending. Making sure that one category is for savings!

Always pay yourself first!

Then use that set amount of cash you put in your envelopes for your spending purposes.

The goal is to make it to the next pay period using only that set amount of money. If you run out of money in your envelopes before the next pay period, you’re done spending.

Why Should You Try It

• It’s easy
• It’s organized
• It will save you money
• What do you have to lose

Find The Envelope System That Works For You

This is the fun part! Find the cash envelope wallet that works best for you. After all, who doesn’t like a good wallet? The best part about this wallet is it’s going to help you save money! There are so many different wallet options out there, how will you ever choose??

Don’t worry, I’ll show you some I’ve had success with.

Paper Envelopes:

When I first started out using the cash envelope system I would use plain old white envelopes, like the ones below. These work best if you don’t want to spend the money on a wallet or for convenience. You’ll love these because you can keep track of your spending right on the back of the individual envelopes.

Most of us also have these laying around the house.

One drawback to using these envelopes is that your money can fall out. I’ve lost money this way because there isn’t a way to keep your money physically inside the envelope, especially if you have loose change. Also, if you have multiple envelopes they can create a cluttered mess in your purse. They also fall apart easily from pulling them in and out of my purse.

However, they are CHEAP and who doesn’t like cheap!

Plastic Wallet Envelopes:

When I got tired of carrying around a handful of white paper envelopes that would rip apart way too often, I tried plastic wallet envelopes. Let me tell you what a nice little upgrade it was. I love that they are different colors!  Now I was able to color code my envelopes. I knew exactly which color went to which expense.

Red is always groceries because after bills FOOD is our biggest expense. If you have trouble memorizing which color is which expense, you can just stick a sticker to the outside to remind yourself.

You will love that these plastic cash envelopes won’t rip apart when I put them in my purse! They also zip shut so coins don’t fall out. It’s a huge improvement from the constantly falling apart white envelopes.

One drawback I had with these was I could no longer keep track of my spending on the back of my actual envelope.  Which lead me having to carry a small notebook around as well.

Dave Ramsey Envelope System:

Yes, there’s more! Some of you might recognize this wallet if you’re a Dave Ramsey fan. He is the author of Total Money Makeover. This was the book I used to get my husband hooked with my frugal way of living. If you haven’t read it it’s a must!

Oh hey, and it worked! 

This wallet is all in one, unlike the envelope systems I mentioned above. What I love most about this deluxe system is that it holds everything. Not only does it hold your envelopes but it also has a spot for your debit cards and checkbook, if you still carry one.  You can also keep track of your expenses right on your envelope, inside of your wallet.

This is a great wallet and it does its job well. The only thing I didn’t care for with this wallet was, (personal opinion) I’m not a huge fan that it only comes in one color. I like bright and bold colors which make me get excited about saving.

Cash System Wallet:

This is my favorite cash system wallet by far, I think I’ve tried them all.

At one point I even carried around a pink plastic mini expanding file folder. I’m not going to lie, it was kind of embarrassing but I was determined to save money and change the direction of my families future.

I hope YOU love everything about this wallet! I know I do. It has plenty of slots to hold all of your individual envelopes. Not only does this cash system act as a wallet but you will still be able to use your white envelopes if I choose to do so.

Yes, they fit in the slots in this wallet.

I love doing this so I can keep track of my spending on my envelopes.

The compartment that carries your cash has a zipper. You won’t be worried about losing money. Another awesome part about this wallet is it comes in so many different designs.

Who doesn’t want to rock an awesome wallet while saving money!

How To Organize Your Envelopes

By now your expenses are written out and your budget is made for the month. 

My biggest piece of advice when budgeting is to make a new budget every month. 

Your expenses are going to change month by month, so keep this in mind. One month you might have to take your vehicle in for maintenance, things come up. This is why creating a new budget every month is very important.

Now that you have your wallet it’s time to organize and label your envelopes or wallet slots, depending on what you will be using.

Start by creating categories for your money. 

You can have as many, or as few, categories as you want. I use a few envelopes, but that is just what works for me personally.

Here are a few examples:

• Groceries
• Necessities
• Fun Money
• Clothing
• Baby Essentials

Remember not everything has to be paid for in cash. You can still use your debit card for gas and paying for all of our utilities via auto draft.. Just make sure you keep track of these expenses and include them in your budget.

Most months your utilities and the amount of gas you use will be close to the same as the month before, so it’s fairly easy to track.

Fill Your Cash Envelopes: Hit Up Your ATM

Now it’s time to go get your cash!

I fill my envelopes weekly. Or you can do it bi-weekly, it’s totally up to you. We are a one income family so I go to the bank once every two weeks, on pay-day. If you have an awesome bank, like ours, who pays back ATM fees then go to any nearby ATM.

Even though I go to the bank bi-weekly I fill my envelopes or wallet once a week. This way I don’t walk around with very much cash. So for us, payday is weekly.

Who doesn’t want a weekly payday?

Once you get home take out the amount of money you budgeted for each category and fill your envelopes or your wallet accordingly. Leaving the money in your bank that you budgeted for your auto-draft bills, gas money, and anything else that comes out automatically.

Pay Off Your Debt

Here’s our big secret! Are you ready?? Any money you have left over in your account after pulling out money for your envelopes and that isn’t included in your budget for bills goes to your savings account.

Yes, your savings!

That my friends is the secret to paying off large amounts of debt and saving large amounts of cash. If you want to get real frugal with your money every month, give yourself less and less money to put in your envelopes and add more to your savings.

How much money do you really need for groceries per month?

Every month tailor your spending and see what works best for you.  In our family it becomes a game, “how much can we save this week?”  You don’t have to make a lot of money to have a lot of money. You just need to be conscious of what you’re spending your money on, this system will help you do that.

Remember when your envelopes are empty, your out of money until the next pay-day.

So spend wisely!

This system works and its helped us save over $100,000k!  Give it a try and then let us know what you think.

Give the cash envelope system a try and let us know what you think!

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