Envelope Budgeting System

Debit cards have been sold as a safer alternative to credit cards, but when it comes to budgeting they can be just as dangerous. That’s because debit cards offer the same convenience as credit cards and people don’t feel the emotional twinge of money actually leaving their wallets. For this reason, my family recently went to a cash-only envelope budgeting system.

Listed below are the steps we took to implement our envelope budgeting system:

Step 1: Determine which categories to include in your budget. Not everything in your household budget can fit into an envelope, literally. Things like utilities, subscriptions, and other recurring monthly bills are typically paid online or via bank draft. The real spending categories we are interested in are discretionary spending categories.

For our family these are food, household products, gifts, entertainment, and clothing. In the beginning we also included gasoline, but the pay-at-the-pump feature is just too convenient to pass up on a cold, rainy day, so we still use our debit card at the pump. Who wants to carry kids into a convenience store to pay for $30 worth of gas in cash?

Step 2: Use past spending to establish initial budget amount. Using Mvelopes and my online banking system’s export feature, I downloaded our last 90 days of transaction history. I identified which transactions fit into each of the five categories listed above. This is not an exact science as $45.90 spent at Walmart won’t help you remember the itemized list of transactions, and to which category they belong. If you still have some receipts, great. If not, just estimate your typical breakdown on a trip to Walmart.

For us a $45 transaction at Walmart might look like: $20 on groceries, $10 on clothing, $15 on household products. Using your best estimate come up with an average monthly expenditure for each category.

Step 3: Create a budget envelope for each spending category. Write the name of the category and the monthly amount budgeted on the outside of the envelope. You may not have enough float in your checking account to withdraw all the cash to fill all the envelopes with your first paycheck each month. That’s fine, just break down the monthly budget amount by the number of times you are paid in a month. In our family the “Food” envelope gets $200 every two weeks (I am paid biweekly), for a $400 monthly grocery budget.

Step 4: When the budgeting envelope is empty, stop spending. The only way this budgeting system will work is if you make a pact up front not to move money between envelopes, and to not spend additional money in a category when the envelope runs dry. If the “Food” envelope is empty three days before payday then you better start searching the freezer for those two-year old corn dogs. If your “Clothing” envelope only has two dollars in it you have to pass up those “fabulous shoes” on sale at the mall.

Step 5: Revise and repeat. No budget is going to be perfect from month-to-month, and envelope budgeting systems are certainly no exception. At the end of the month look back at your spending and determine where you could have allocated a little more, and where you assigned too much of your paycheck.

We routinely have more in our clothing envelope than planned, but we simply leave the money in there because clothing purchases tend to come in waves when the weather changes, or as the kids outgrow their current wardrobe. We empty the other envelopes at the end of the month to make an extra contribution to our debt snowball. This gives us a little extra incentive to try to stay under budget in each category.


  1. Jason – I am a firm believer in carrying and using cash to make purchases. Whenever you have to pull out cold, hard cash to make a purchase it has a different psychological impact compared to using plastic, even if it is a debit card. We have used the envelope system and it works great. I highly recommend it to anyone trying to get control of their money. My wife and I have been using for about the last 18 months and in that time it has helped us to control our spending and pay off a lot of debt. We use physical envelopes for carrying cash, but we also use Mvelopes.com for our overall spending plan and money tracking system. It is an online version of the envelope system and it is far superior to any others that I have seen. Great article!

  2. I am a big believer in cash too and we use the envelope system in our house too. Everyone gets an allowance for the month and we can use it on whatever we want. I tend to spend mine on coffee out while my husband spends his on lunches at work. I have a “thrift store” allowance too to keep even that in check. It helps me think a little more about what we are spending and I check in with Quicken often too.

    Thanks for the great suggestions!

  3. I’m also a believer in cash. I get paid once a month, which is directly deposited into my checking account, and then everything else is automatically deducted, and spoken for, except for my discretionary income. For that, what I like to do is to go to the ATM on the 1st and withdraw 1/2 of it for the first two weeks of the month and put it in envelopes like you described, and then on the 15th go to the ATM and collect the other half. That gives me the peace of mind that I won’t run out of money by the end of the month. (I agree w/you re the convenience of using the debit card for gas, so do that too).

  4. I’m just now nearing the end of my first budget cycle with envelopes and cash. Previously, I tried to budget, but used a debit card and found it easy to overspend in categories if I knew that money was available.

    So far, I’m finding this very helpful in getting back in control. It looks like I’ll come in significantly under budget in all categories. That hasn’t happened in a long time.

  5. I have a kindof stupid question. My husband and I tried using a cash envelope system a few years ago and gave up (currently using Mvelopes–love it) but we’re interested in using cash envelopes for a few things to keep a tighter reign on the spending. The issue we ran into was that it took so much time and effort to figure out what needed to stay in the account for auto-withdraws, and then figure out what denominations to withdraw so that the money could be split up properly, that it became too frustrating. It seems like a simple problem, but how have you (or others) dealt with it?

  6. Leslie,

    I don’t know too much about Mvelopes, but it looks like its online. The great thing about the ‘cash’ system is that it is something tangible, its not electronic.

    It definitely takes a lot of effort and time. That can be the most frustrating part. Especially making sure to pull the money out BEFORE you need it. However if it’s a priority, you’ll just do it. It drives me crazy sometimes, but it’s worth it to us to save the money, so I just suck it up, lol.

    Here’s what I do that I think makes it easy for me. I type out our budget using EXCEL. Let me know if you want me to send you a blank budget. Once we get paid, EVERYTHING goes into our checking account. I keep track in a notebook our checking account ledger (this is kind of like a large check book transaction ledger). On our budget, it shows all of our bills/spending expenses(i.e. groceries, gas, dining, blow) for that paycheck (we budget bi-monthly).In our notebook, I deduct all of the bills that are AUTO-Withdrawals, even before they happen. This helps me make sure I have the money left that I am going to withdrawal for the ‘envelopes’. However, your budget should do the same thing.

    As for the cash, In the left margin of our budget, once i print it out, I make 2 or 3 columns (20’s, 10’s, and 5’s). I then split up the money needed into those categories. I go to the bank with a list and get the denominations I need. It really doesn’t take that long. Let me know if i explained it badly. It’s a great system and saves a ton of money.

    Good Luck and God Bless!

  7. I love the envelope system, but I dislike carrying cash for two reasons:

    1. I have an interest-bearing checking account which has a high APY but requires a minimum number of debit transactions per month to qualify for interest;

    2. I dislike the idea of carrying large amounts of cash on me, partially because I am likely to misplace it through forgetfulness, and partly because (rationally or irrationally, I’m a petite woman) I am concerned about theft.

    So what I do instead is carry around “fake” envelopes to track my debit purchases. Every pay period, I print out several slips of paper prefilled with the spending category and start amount, and each time I use my card I record it on the appropriate category. In this way, I get the benefit of being conscious of my spending, without the risks of carrying cash.

  8. I just found out about Piggy Banks on wikipedia and, after having looked a menvelopes and YNAB Pro, I would have to say that this is the easiest and most practical program to use. For example, its free, it automatically downloads my transactions, and setting it up is a breeeze. It does lack some features (like graphs), but it makes up for it in its simplicity to use. Try it out at http://trypiggybanks.com

  9. As to what denominations to ask for at the bank, there is an easier way to think of it.

    Just ask for separate cash amounts.

    “I need $615 in cash but in 3 separate amounts: $220, 310, and $85.”

    The teller will do the rest.

  10. I just came across this post. Nice work!

    In the New Year I love going back and looking at the budgeting techniques others are using. Envelope budgeting seems to be one of the most successful systems I come across. It takes some dedication and discipline, but I think the effort is well worth it for those in debt.

  11. I use a budget software called B-Word this works great and a sure way
    to payall and never have to worry about when bills come due. I hope
    this helps someone plus this is online to .

  12. I’ve never really been a big fan of budgeting, but since my money became tight I’ve felt the need to better organize my personal finances and control my spending. I’d never kept track of my expenses before, and the outcome was obvious: at the end of the month I kept asking myself where did all my money go. After reading some reviews and digging a little bit further into the topic, I figured out that setting a budget wouldn’t be such a bad idea after all. Now I’m using a free web based personal finance planning and budgeting software https://www.inexfinance.com/. Having my money carefully divided among different spending categories gives me peace of mind and I no longer worry that I’ll run out of money way before the end of the month.

  13. where can I buy budgeting envelopes. We’ve been using them for years and now the envelopes are all ripped. The company stampled on the back states Springfield but I can’t reach them……Help

    • I got spendvelopes from amazon.com. They are sturdy, multiple colors, and the company has great customer service! I just started the envelope system and am looking forward to getting our family’s spending back on track! Oh yes, and they also send you a copy of the register on the inside flap of the envelope so the envelopes are good for months.