Budgeting doesn’t have to be boring. Using envelopes to budget, known as the ‘cash envelope system’ is a clever way to visually budget your money and ensure you have enough set aside for all your expenses. This straightforward approach to budgeting your money can be done with simple paper envelopes or reusable plastic folders. You can also use a free or paid cash envelope template system to help get you started with your budget.
If you are a visual person, or if you prefer dealing with cash rather than debit or credit cards, the cash envelope system is a great budgeting option. There are virtual options that help you divvy up your cash in ‘online envelopes’, but this post will focus on physical envelopes.
There are many benefits of using envelopes to budget your money, but it is important to remember that there is no ‘one-size-fits-all’ budgeting method. What works for one person may not work for you. As long as you find the budgeting method that works for you and your family, that’s what truly matters!
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What is the cash envelope system?
The cash envelope system is a way to accurately budget your monthly expenses using cash money. Budgeting with envelopes is very easy as you are literally putting cash into envelopes to help you understand where your money is spent.
Here’s how it works.
Based on your finances, select categories that you need to budget money for and create an envelope dedicated to each specific category. Once you have your budgeting categories, decide how much cash money to put into each envelope.
The goal of using the envelope system is to spend the money inside the envelope on that category’s expenses only. If you use all the money in the envelope, the aim is to wait until the next replenish date to fill your envelope back up with cash. By doing so, you stick to a budget that focuses on spending only the cash you have in the envelope for the allotted amount of time.
What are the categories for the cash envelope system?
First things first. Figure out how much money you (and your partner, if you’re doing a joint budget) make each month. Knowing your monthly income determines how much you can budget.
Next, establish spending categories and limits per category. It’s important that you don’t exceed the amount of money you make each month. Once you’ve done this, you can start crafting your categories. Here are some category suggestions:
- Car Insurance
- Health Insurance
- Personal care items
- Streaming services
Once you have your categories established, put a spending limit on each category. This step is very important because it’s where the actual budgeting comes in. Be realistic about your spending limit, especially if your goal is to save money or to cut down your spending.
Hint: Focus on budgeting fixed expenses first such as rent/mortgage and car insurance. These are expenses that don’t change from month to month and are typically the more important and necessary categories. When you have successfully budgeted for fixed expenses, then move on to varied expenses such as groceries and entertainment.
You also have the option to leave rent/mortgage out of your envelope tracking system since this is usually a cost upwards of $1000. It’s completely up to you (and how much cash you feel comfortable taking out of the bank and keeping in your home).
How to use the cash envelope system
Using the cash envelope system is quite easy, which is why a lot of people find success doing this.
But before you get started, ask yourself why you’re creating a budget in the first place. Are you trying to save for a big purchase such as a house, car, or wedding? Or, are you trying to cut back on your spending? There are different reasons people create a budget—sometimes budgeting is simply meant to help keep track of HOW and WHERE you spend your money. Whatever your reason is, identify it before you get started so that you can have motivation and clarity.
With that said, here is how to use the envelope system.
Establish your budget
The first step in using the cash envelope system is to figure out how much you (and your partner) make each month. This step is necessary so that you can decide how much money you can spend within a month.
Choose your categories
Everyone’s financial situation is different, which means your categories will be specific to you and your family’s needs. Do your best to divvy up all spending into a specific category. This will help you get a realistic picture of your finances to be able to see where spending is high or unnecessary.
If you aren’t sure how you spend your money, a helpful tip is to check your online banking statements. Review statements from the past 2-3 months to get a clear picture of your spending habits.
When your categories are established, the next thing to do is to set a spending limit for each category. For fixed categories (rent and insurance), it is easier to decide on a spending limit. It might be more challenging to decide on a dollar amount for the other categories, which is why understanding your spending habits is a helpful step in this process.
Remember, be realistic. You don’t want to discourage yourself by creating a budget that is impossible to keep.
Stuff your envelopes with cash
This is the fun part. Once you decide your budget and make your envelopes, all that is left to do is to get cash from the bank and stuff your envelopes.
It is good to decide how often you will fill up your envelopes. For example, if you get paid bi-weekly, will you fill your envelopes twice a month or just once a month? This completely depends on you and your family situation, but it might take a few pay cycles to figure out what works best. Just be patient with yourself as you perfect your technique 😀
Tip: Make sure to use one category per envelope to avoid confusion.
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Pay your bills (on time)
When it is time to pay your bills, the money you have set aside in your envelope should be enough to cover your expenses. The beauty of the cash envelope system is that all the money for your bills and expenses is already budgeted.
However, if you happen to run out of money before it is time to restock the envelope, don’t borrow money from a different envelope. Part of maintaining a successful budget is by practicing self-control.
It is also okay to adjust your budget as you go. You probably won’t get it perfect the first month you try, so ease into it with the mindset that tweaking it here and there is actually a good thing. The goal is to create a budget that helps you meet your financial goals 😁
What can I do with leftover cash from cash envelopes?
There are a few options for how to handle money that is leftover at the end of the month.
One way is to roll the money over into the appropriate envelope for the following month. This can help you disperse the money easier and add a little more to your entertainment or fun budget.
The other option is to put the extra money into a savings account. Ideally, putting extra money in your savings is a great option because saving money is a valuable asset when budgeting your money.
How you handle leftover money can also change from month to month. If you know that you have a particularly expensive month coming up, having a little extra money in your envelopes helps alleviate the financial burden. However, if you don’t have anything extra coming up on the calendar, throwing the money in your savings is a great way to gain some interest and make a few extra bucks on the leftover cash.
What to use for cash envelopes
While you can make your cash envelopes from scratch, it is probably easier to use a cash envelope template. Luckily, there are tons of templates you can buy that are either pre-made and/or customizable. Below are some great cash envelope template options to help you get started.
Clever Fox Cash Envelopes
The cash envelopes from Clever Fox are waterproof, tear-proof, and they come with a pouch to store your envelopes in. These are best-selling envelopes that have helped countless people with their budgets. See them here.
Rae Dunn Inspired Cash Envelopes
These laminated envelopes are gorgeous. They are handmade and come in bundles of seven. The cash envelope templates are customizable so that you can order the exact categories you need for your budgeting needs. View them on Etsy here.
Cash Envelope Template Inserts
If you want something a little less fancy and more straightforward, these cash envelope inserts are heavily focused on tracking your money. They are a more unique take on the cash envelope system, but for many people, it is highly effective. Check out the inserts here.
Budget Envelopes for Cash System
What’s great about this cash envelope template system is that it comes in a bulk pack of 96 envelopes. Obviously, you won’t have 96 spending categories, but it is great to have extra envelopes in case of error, or simply to add envelopes when necessary. The best part is the price. The entire bundle only costs $11 on Amazon.
Zipper Cash Envelopes
These handmade zipper envelopes are a simple way to store your cash. You can choose the font you want and the font color. The envelopes also fit into a binder in case you wanted to store your stuff all in one place. Check these out on Etsy here.
Final thoughts on the cash envelope system
Budgeting your money using cash and envelopes is an effective and visual technique to take control of your finances. You can either make your own envelopes or you can invest in a cash envelope template system and customize them to meet your own needs. Happy budgeting!