How to use the cash envelope system to save money

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

I know why you are here!  You keep hearing about this “cash envelope system” and finally your curiosity got the best of you!  Let me guess?  You decided you were finished letting your money stress you out!  And, you have decided to take back control of your finances and make some major changes…am I on the right track?

This is great news and I’m so excited for you!  Finally learning how to live on a budget and ditch the credit cards for cash helped us pay off $35,000 in only seven months so we are proof that the cash envelope system works!

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How does the cash envelope system work?

If you’re not familiar with the cash envelope system, then you’re in the right place because we are going to cover it all…consider this your complete guide to the cash envelope system!

The first thing is that it has a lot of variations.  You might hear this referred to as the “cash envelope system” an “all cash system” or even “cash clip system” but the basics are pretty similar:

You budget a certain amount for each category ie: food, car maintenance, pet supplies, etc.  Next, 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!

This helps you stick to your budget by teaching you to be more disciplined and not swipe that card everytime you “need” something extra.  When you spend all the money in your envelope you must wait until it is time to refill it in order to spend more money in that category…pretty simple!



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

How to set up your cash envelopes

First things first: get yourself some envelopes!  We currently use a combination of basic plain envelopes and the ones from the Financial Peace University Kit.

They are my favorite since they have a register printed on all sides, which allows me to keep track of what I spend almost like a checkbook.

Next, take a look at your budget 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 have envelopes for the following categories just to give you an idea, but they will likely be different for you…



FOOD – Grocery shopping and any extras we need to pick up for our meal plan

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 date night

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 this category allows us to be charitable in other 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 (join and get a $10 gift card)

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


How to use the cash envelopes?

You need to determine how you’re going to fill the envelopes.  We fill them each time my husband is 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 one included in the Financial Peace University Kit as I mentioned but I had upgraded to this one!

If you don’t want to use an actual wallet you can always just grab some envelopes and toss them in the wallet you already use!  This works great if you keep them at home and just take what you need.  These are super durable and also include a register on them!

I just found this awesome cash envelope wallet and I’m in love! I’ve read the reviews and actually, everyone that buys it seems to be in love with it, so I’m going to save up and customize my own! It’s perfect because it’s not as bulky and will free up some room in my bag!
I saved so much money once I started using the cash envelope system! This post answered all my questions about how Dave Ramsey's cash envelope saving system works and the cash envelopes helped me so much with budgeting! #lifeofstones #cashenvelopes #budgeting #cashenvelopesystem


How does this help you stick to your 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 necessarily 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 in the world those “couple of small purchases” added up so fast?!?!


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

When using 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 believe me, it’s made me put many items back on the shelf!



How long do I have to use the cash envelope system?

This is completely up to you!  We are currently still using this since we are not yet debt-free.  It works really well for us but I admit, it can be a bit of a pain sometimes.

We have taken some breaks but each time I eventually see the ripple effect it has on our spending so we always come back…

If you are not currently in debt or are not up for using the cash envelope system as laid out above, consider a modified version!

The same concept but you can consolidate your categories.   Perhaps you even just add them all together and label it  “SPEND”.

I would suggest keeping food separate, however, with grocery being one of the largest categories for most families, it’s easy to go over!

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 up with any of your own variations? I’d love to hear them….share your awesome ideas in the comments below!  Don’t forget to sign up for the FREE Begin to Budget 5-day email course to jumpstart your financial makeover today!


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  1. Do you have any suggestions on how to do this when you don’t receive paychecks on a schedule? My husband is self-employed and the times and amounts he gets paid varies from month to month.

    1. Sheila, yes, definitely try it out!! I swear, it makes a huge difference! Just having that visual each time you look in your wallet is an instant reminder that you are a woman with a plan 🙂

      1. I never carry cash, no one has a problem carrying this amount of cash around? Also, what about health, where would that fit in…drs appointments, etc? Is that miscellaneous or a fixed expense?

        1. Hey Drew, I really only carry what I need at the time, for the most part…I’ve also switched to keeping the majority of my categories in a bank account (the ones that aren’t used often and build up a balance) because I didn’t like keeping a lot of cash in our home either. I do keep an envelope that I call “Doc/Meds” there is not a lot of cash in it (we are very fortunate to have great insurance) so I keep it in an envelope for if we have a sick kid or I have to refill my allergy meds…but if you have a high prescription co-pay you might want to save a bit more. Hope that helps!

  2. 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!

  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. 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!

  5. 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!

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