Why the cash envelope system is the best way to save money and stay on budget

Why the cash envelope system is the best way to save money and stay on budget - Life of Stones

You are really on a roll!  You decided you were finished letting your money stress you out, you have decided to take back control and make some major changes around here.  This is great news and I’m so excited for you to feel as amazing as we did once we started gaining some traction with our finances!


One thing that really helped us was cutting up {almost} all of our credit cards….yes, this includes Target (tear) and switching to a cash envelope system.  I know it sounds kind of crazy but I think it’s safe to say this is what helped keep us on budget the past seven months!



If you’re not familiar with the cash envelope system, I can tell you it has lots of different variations but the basics are pretty much the same:  You budget a certain amount for each category ie: food, car maintenance, pet supplies, etc. you withdraw that amount of money each month and you keep it in an envelope.  This is all you spend (on said category) for the month….when it’s gone, it’s gone!  Pretty simple!


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Why the cash envelope system is the best way to save money and stay on budget - Life of StonesWhy the cash envelope system is the best way to save money and stay on budget - Life of Stones

How to set up your envelopes

First things first: get yourself some envelopes!  We use a combination of basic plain envelopes and the awesome ones from the Financial Peace University Kit.  They are my favorite since they have a register printed on all sides and I love the way they open (because I’m a nerd) and they allow me to keep track of what is being spent from each envelope.


Next, take a look at your budget (for help creating a budget check out this post) and see which categories you would need to spend throughout the month.  For example, you will likely be paying your housing expense from your bank account instead of cash, so you wouldn’t need an envelope for that.


We made envelopes for the following categories just to give you an idea, but they might be different for you…


FOOD – Grocery shopping and any extras we need to pick up throughout the week

TOILETRIES – We keep this for only normal toiletry items we need, paper products we keep separate

ENTERTAINMENT – Anything we want to do with the kids or for B and I to go out (which we never really do).

MISCELLANEOUS – Inevitably extra expenses will come up, we use miscellaneous for those.

PET SUPPLIES – Food, litter, treats, etc. for our fur kids.  (We have a sinking fund for vet trips)

EATING OUT – Restaurants are rare for us but we do grab a pizza or Chipotle 2-3 times a month.

CHARITY – Aside from tithing we set aside a certain amount each month for helping others in different ways.

GIFTS – This is a big expense for us, budgeting has helped immensely in this category.

SAMS CLUB – We buy all of our paper products here ie: TP, paper towels, napkins etc. with our Sam’s membership


Determine what your own categories will be and label an envelope for each category and you’re all set up!


How do I use the envelopes once I’ve created them?

You need to determine how you’re going to fill the envelopes.  We fill them each time B gets paid, which is bi-weekly. I take our full budgeted amount for the month and split it in half.  I add up the halved amounts for each category and that’s what I withdraw from the bank every two weeks.


Now stuff your envelopes!  If you’re using the printed envelopes from the Financial Peace University Kit then be sure to add your “deposit” amount on your register.  I find this extra helpful because when I’m in a hurry I can simply look on the outside of the envelope and see the “balance”.  When I make a purchase with the money in that envelope I mark down the amount and deduct it on the outside of the envelope, just like a checkbook!


Some people keep their envelopes at home and some carry them around, that’s a personal choice depending on what is more convenient for you.  You can also use a cash envelope wallet to make it easier to keep your envelopes organized!  There is a cash envelope wallet that comes in the Financial Peace University Kit and I purchased an upgraded one on Amazon and gave B the one that came in the kit.  I do the majority of the shopping for our family so this one was great with the notepad and the card holders!  When a particular category is spent then you are finished making purchases for that category until it is time to fill your envelopes again!



How does this help me stick to my budget?

There is a very distinct difference between making purchases with a credit card and making purchases with cash. This was an eye-opening part of Financial Peace University for us!  You don’t feel it when you spend with plastic.


Obviously, you know you are spending money but you don’t feel the impact it has on your bank account.  We get so used to “swiping” all day long.  You don’t really feel the damage until you see your statement.  Then you’re left wondering how the heck a couple of small purchases added up so fast?!?!


When you use the cash envelope system you are feeling each purchase.  Trust me, it kind of sucks…. You will be surprised how much more you question each purchase you are about to make instead of swiping your life away!


With cash, you have an emotional reaction to handing over your money.  It makes you think about whether you really want to spend that money.  Is it worth handing over all your hard-earned cash? Giving your money away hurts! And it’s made me put many items back on the shelf!


How long do I have to use this system?

This is completely up to you!  We are currently still using this since we are not yet debt-free (next week hopefully).  It works really well for us but it can be a bit of a pain sometimes.  A couple of times I had thought about stopping but decided against it since I think it really helps us stay on track.


I will mention that once we have the debt paid off I think we may “loosen the reigns” a little.  Perhaps combining categories or just having a certain amount that we withdraw each pay and just have it simply for “SPEND”.  I would keep food separate, however, because I do a big grocery trip once a month.  I feel as though our new money habits are pretty solid at this point but if we saw that wasn’t working then we would switch right back to hardcore envelope budgeting!


I encourage you to give this system a try especially if you’re finding it difficult to adhere to your monthly budget!  I think you will find it extremely helpful!


Have you tried the cash envelope system in the past?  Have you come with any of your own variations?  I’d love to hear them….share your awesome ideas in the comments below!


xo kristin



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  1. It is interesting how we spend money when we are connected to the actual paper currency rather than being removed by using a credit card. This is a great plan and one that I can see being very beneficial for sticking to a budget. Thank you!

  2. When I was in college, I used a similar system, and it worked really well. Now, we are kind of attached to our credit cards, since they all offer cash back! But it’s definitely a good system!

  3. This is such a great way of keeping track of your spending, there’s nothing like seeing the money disappear from the envelope to make you really consider your purchases! It’s so much more effective than just ‘swiping’…doing it this way you really do have full control on what you spend.

  4. I use this exact system!! I’ve been doing it for years. And then the envelopes that I have for saving of some sort, I put in a small lock box so that it’s out of sight out of mind. Great idea sharing with everyone!

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