How to Start the Cash Envelope System for Beginners

Our family has been on a journey to pay off over half a million dollars of debt for a while, and the cash envelope method has helped us a lot.

Today I want to explain the cash envelope system for beginners. I am going to answer all the questions that I often get about how to start the cash envelope system, and hopefully, this will help you get started as well.

What is the cash envelope method?

What are cash envelopes?

Research says that when you are using a debit card, or especially a credit card, you spend more because you don't feel the cash leaving your wallet. That is where the cash envelopes can really help.

At the beginning of our debt-free journey, we really wanted to do everything we could to make sure we were only spending money on complete necessities. Cash envelopes have really helped us control our miscellaneous spending.

Since then, in months when we were too lazy to use the cash envelope system, we did overspend.

How to start the cash envelope system

What do I do?

1. Create your budget

Decide how much money you're going to spend in each category in your budget: on rent, utilities, clothing, entertainment, and so on. I also recommend not only writing out a budget, but also a calendar where you can actually see what dates everything is due on.

2. Look at all the cash envelope system categories that you have come up with, and decide what needs to be paid online

These will probably be the things you spend a set amount on each month: rent, electricity, TV, Internet, etc. Autopay is convenient for these. With these, you do not have to worry about impulse buys, so leaving them as online payments works just fine.

However, if you have trouble going over your grocery budget each month, don't even bring your debit card in there. Take your $100 bill or whatever you use to budget for groceries for that week into that grocery store. It could be embarrassing, you might have to put some stuff back, but that will help you stick to your budget.

Another envelope-worthy category is “fun money”, like things for holidays, gifts, or clothing items, since we do tend to overspend on these.

3. Print out a cash envelope for each category

Then, based on what is left over in your budget after you have paid for those necessary items (including debt payments) out of your bank account, allocate a budget amount to each envelope. Now the main thing is that you are sticking to those amounts.

Cash envelope system categories

How do I create my cash envelopes?

There are so many options! I have free printables on my website. You can also find some really cute binders with clear plastic envelopes on Amazon.

Another option is to just go to Dollar Tree and get a big box of regular white plain envelopes and then write on those. You can get some cute color multicolor envelopes off Amazon. You can make your own. Honestly, it doesn't matter. The whole point is making a budget and sticking to it.

Where do I store them?

Up to you. Personally, I try to only bring cash with me when I am planning to spend it. This prevents being tempted to spend the money on other things, and you just don't want to be carrying around a ton of cash with you. Losing all that money would be a shame.

Cash envelope system for beginners

What about shopping online?

At my house, we have a little money bucket, so if we decide to buy something online, we then put that amount of cash into the bucket.

At the end of the month, depending on how much there is inside, we either deposit it into our bank account or use it for the next month’s envelopes. Regarding coins, you can get those rolled and take them to the bank.

What do I do with the leftover cash in my envelopes?

If you are on a debt-free journey, you might put that extra cash towards debt that month. You could also start saving up for a bigger purchase in that area, like a coat or boots for clothing.

Can I steal from another cash envelope to fund my clothing cash envelope?

Again, up to you, but I try not to move money around. It is good for self-discipline and helps us stick to our budget.

Aren’t I going to overdraft my account if I pull all this cash out at the beginning of the month?

This is where things get kind of tricky and frustrating. This might be hard for some people who are beginning their debt-free journey, so what you might need to do is to build up a little bit of buffer in your bank account before you start the cash envelope system.

In order to do that, you will have to pause all your unnecessary spending for a few weeks, and only spend money on complete essentials like rent and groceries. If that is not enough, you can look at having a garage sale or something similar.

If you still think it is going to be difficult to get a whole month's expenses saved up in your account, you could try doing envelopes every two weeks instead of every month.

Cash envelope system for beginners

That is it, simple as that. Hopefully, this FAQ about the cash envelope system will help you stay on budget. Do you have more questions about using cash envelopes? What do you prefer to use for your cash envelopes? Let me know in the comments!

Join the conversation
2 of 4 comments
  • Clare Clare on Dec 13, 2022

    I found that I couldn't just pop into the grocery store and do my shopping if I had time cos I didn't bring the envelope with me. It made my week too routine and didn't allow for spontaneity. I started keeping the envelopes in my car but lots of money floating around. I do love the system theory tho. Now I work out how much I need for my week in all categories and put it in separate bank accounts. I use my card and then immediately transfer the money from the sub account.

  • Clare Clare on Nov 13, 2023

    Im still doing the 8 sub accounts -just like they do on the block!!! Where they put into a sub account fir different rooms or weeks. Its still going well. I write how much i need per month in the name of the account and put that much in Each week. It builds up and i use it when that bill comes in. Working very well