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How To Create A Winning Cash-Based Envelope System Budget

Jul 28, 2023

Are you tired of struggling to stay within your budget month after month? Do you find yourself constantly going over your monthly spending limits? Wondering how the cash-based envelope system can work for your budget?

If you answer yes to these questions, then it’s time to take control of your finances and the cash envelope system might just be the solution you’ve been looking for!

Woman's hand holding cash over an envelope on top of a wood desk near an apple keyboard
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With this simple and effective system, you’ll gain a clear understanding of your spending habits, helping you stay consistent and mindful of your money. 

What Is The Cash-Based Envelope System?

A cash-based envelope system is a powerful tool to help you combat overspending and impulsive purchases, guiding you towards sticking to your budget effortlessly month after month.

No matter your financial situation, the cash envelope system can be a game-changer in your personal finance life. 

This system will help you take back control of your finances, allow you to set goals with intentionality, and help you move closer to your financial success.

Is Cash Envelope A Good Idea For A Budget?

Absolutely YES!

The cash envelope is one of the best methods to help you with budgeting. Especially in the areas where you struggle the most with staying consistent.

With this system, you will have to be more aware of your spending as you are only using cash for purchases.

If you are in a debt repayment phase of your budget then make sure to read the article How to Build A Budget for Debt Repayment – this will give you a better understanding of how you can stay consistent and use the cash envelope system to guide you.

What Cash Envelope System Should You Have?

Worried about which cash envelopes to use?

Don’t worry – this is very easy to understand and you can make a quick decision once you take a good look at your budget.

The cash envelope system functions better on those budget categories that you tend to overspend every month. Usually the variable spending categories.

Some examples may be:

  • Groceries category
  • Entertainment
  • Dining out
  • Beauty
  • Holidays / Birthdays
  • Medical Co-pays

If these categories are not carefully monitored, you can spend more than you have budgeted for.

Using the cash system makes it easier for you to see how much you have to work with and how much you have spent every month.

How To Create A Cash-Based Envelope System?

Understanding and implementing the cash envelope budgeting method is easier than you think and we will help you with all the information you need to get started.

So here are a few tips on how you can adopt and implement the cash-based envelope system:

Create Specific Envelopes:

Start by creating envelopes for various spending categories, such as groceries, dining out, entertainment, transportation, clothing, and any other areas where you tend to overspend or only use cash.

Determine Budget Amounts:

Decide on the amount of cash you want to allocate to each envelope for a specific time period (e.g., weekly or monthly).

Make sure to set realistic and achievable amounts based on your overall budget and financial goals.

Withdraw Cash Regularly:

At the beginning of each budgeting period, withdraw the cash for your allocated spending categories so you can stuff your envelopes accordingly.

Ideally, this would be every time you get paid so you can stuff your envelopes accordingly based on your budget.

Label Envelopes Clearly:

Write the name of each spending category on the corresponding envelope. This will help you easily identify and differentiate between the envelopes.

Use Envelopes for Spending:

Throughout the budgeting period, use the cash from each envelope to make purchases within its designated category.

For instance, when you go grocery shopping, use the cash from the “groceries” envelope.

Woman shopping at a local grocery stores in the produce section holding an envelope with cash

No Borrowing Allowed:

Once an envelope is empty, resist the temptation to borrow from other envelopes.

This is a fundamental rule of the cash-based envelope system. If you run out of cash in a particular category, you’ll need to wait until the next budgeting period to replenish it.

Track Your Spending:

Keep track of your expenses for each category. You can use a small notebook or a budgeting app to record your cash transactions.

Digital Transaction tracker worksheet on an iPad screen

Make sure to write down the beginning balance for each envelope and start deducting as you use the cash so you can keep a running total.

Cash Envelope sample with money

This will help you calculate how much you’ve spent on each category every month.

Keeping the receipts inside the envelopes can be a tremendous help if in case you forget to write down how much cash you used and where you spent the cash.

Rollover or Adjust Envelopes:

At the end of each budgeting period, you have the flexibility to either roll over any remaining cash in the envelopes to the next period or adjust the budget amounts based on your spending patterns.

Reevaluate Budget Amounts:

After a few budgeting cycles, review your spending habits and adjust the envelope budget amounts if necessary.

You may find that you need to allocate more or less money to certain categories based on your actual spending.

Practice Discipline and Consistency:

The success of the cash-based envelope system relies on your discipline and consistency in sticking to the budget.

Avoid using credit cards or dipping into your bank account for non-essential expenses.

Use the Envelope System for Problematic Categories:

Consider using the envelope system for categories where you tend to overspend.

This method imposes a tangible limit on your spending and helps you become more mindful of your financial choices.

Involve Your Partner or Family:

If you share finances with a partner or family members, involve them in the envelope system to ensure everyone is on the same page and committed to the budgeting process.

Keep Envelopes Secure:

Keep your cash envelopes in a safe and easily accessible place. Consider using a small wallet or envelope holder to keep them organized.

Just a safety tip – avoid going out with all your cash envelopes and only take with you the envelopes you plan on using for that particular day.

Final Thoughts

The cash-based envelope system is effective in promoting mindful spending, curbing impulsive purchases, and helping you stick to your budget.

It can be particularly useful for those who struggle with overspending or find it challenging to track expenses digitally.

By adopting this system, you can gain better control over your finances and work towards your financial goals with greater intentionality and success.

The Budget Academy
Fab Kellum author of the Girl, Get Out of Debt! blog

Hey you! Welcome to The Budget Academy. I am Fab, a mom, and an entrepreneur at heart. Like many, I have overcome financial struggles, and now I get to share with you how I became debt-free and what I learned on my own personal journey.  I have a Finance and Real Estate background and am passionate about helping others succeed and achieve financial freedom.  So, please don’t be shy, let’s connect and start this journey together! Learn more about me here.