Setting up Your Cash Only Envelope System

by Kristi on January 2, 2011

Are you looking for a way to change your spending habits in 2011? Why not consider using a Cash Only Envelope System?

In an earlier post, I mentioned that my family has decided to do away with credit and debit cards in 2011. Instead of throwing down a card anytime we make a purchase, we are going to be using cash. Now, this doesn’t mean that we are just going to change from plastic to paper, we are going to be putting in place an entirely new budgeting system to eliminate careless spending.

Here are the steps to how you can create your own cash envelope system:

Step 1: Create Categories.

After analyzing our budget with Mint’s FREE online budgeting software, we determined that we needed to divide our expenses into several different categories. We chose categories based on things we typically used our debit card to pay, like Groceries, Dining Out, Entertainment, Household, Clothing and Gifts. Many things, like car payments, house payments, church tithe, etc. do not vary from month to month, so they are not figured in.

Step 2: Determine Budget Amount

The budget software really helped me to figure out what I was spending each month in the before-mentioned categories. The next step was to decide how much I wanted to try to spend going forward.  Remember, the idea is to spend LESS!

Step 3: Put Cash in the Envelopes

We only get paid once per month (the last day of the month)  so that makes planning really essential. For us, it makes the most sense to pull the cash out of the bank on the first day of each month. If you are paid twice per month, you may choose to do this bi-weekly. Be sure to know exactly how many of each type of bill you will need before going to the bank, so you are able to place the exact amount of cash correctly in each envelope.

Step 4: Use the cash

The idea is to use cash only for your expenses, and to make it work you have to abide by this one rule: when cash is gone, you are done spending in that category for the month.When you make a purchase in any of the categories, simply place the receipt in the envelope so that you can see exactly where your money went.

Step 5: Analyze

At the end of each month, take a look at your envelopes and determine how you did. If you have extra money still left, you will not need to pull as much cash out the next month! Continue to find new & creative ways to cut back on your expenses and I think you will find that you really can do more with less!

If you are already using the Cash Envelope Method, I’d love to hear about your experience! Please feel free to leave a comment below!


Sarah B January 2, 2011 at 6:16 pm

We are using the Cash Envelope Method too! We started a couple months ago and I actually bought Dave Ramesy’s bilfold that has the envelopes in it.- it was on sale for only $10! I don’t write on the evenelopes so I can reuse them over and over again. I have noticed I do spend alot less when I have cash instead of using my debit card. Normally I would just buy what I was going to get and swipe the debit card, but now I plan my trips better and don’t buy things if I don’t have the cash to cover it. I also created an Excel template that I put my average weekly pay in and then take out the bills that are due for that week. This way I can see how spending $50 this week might affect my account next week or weeks from now. I may need that $50 4 weeks from now to cover a bill. If this is the case then I adjust my cash in my envelope to cover the bill and I get the difference to spend. Of course I don’t have to spend it either! My husband and I both use the envelope system and we are each given so much. If we can spend less than that is extra that we can use to save for something big! We have now been credit card free since September of 2010!

Kristi January 3, 2011 at 12:21 pm

Thanks so much for sharing your story. I really think using cash is going to make a HUGE difference for us as well. It is nice to know that I can’t shop for something on the spur of the moment. If there isn’t cash for it, then it forces me to wait. My hope is that by having to wait, I will see that I don’t really need it to begin with.

Sabrina January 3, 2011 at 9:54 am

We started getting serious about budgeting about a year ago and using envelopes. It’s great to know for certain when I can and can’t afford something – no guessing. The only problem I ran into was that envelopes were a inconvenient to carry and I often forgot to take cash with me when I went to make a purchase. I recently found a coupon organizer that’s faux leather, zips up and has 8 divisions in it with tabs, but is about the size of a regular wallet – the plastic ones I’d seen were too long. I just drop the money in the correct pocket and now I always have it with me when I need it. It keeps me from using my debit card in a pinch and having to replace the money in my bank account.

Kristi January 3, 2011 at 12:21 pm

Great idea about using a coupon organizer for cash! I’d love to see a pic of what you use.

Holly January 27, 2011 at 12:36 am

Thanks for the step-by-step. I’ve always been interested in the cash/envelope system gut I’m scared to make the leap!

Kristi November 29, 2011 at 6:43 pm

It is hard to wrap your mind around it in the beginning, but once you get in to it, it is life changing! Thanks for stopping by!

Penelope January 27, 2011 at 1:03 am

I love it! i’m going to show this post to my husband…we still charge too much, and as a result have debt still.

Kristi November 29, 2011 at 6:44 pm

:) It is a great way to track your money and you will really get a feeling as to where your money goes each month.

Barb January 27, 2011 at 11:27 am

I really really want to do this! I’ve been thinking about it for some time and have even done the envelope system fot things in the past. I know it helps to save money for things like groceries.

Kristi January 27, 2011 at 1:17 pm

Barb, it really does help. We’ve been doing the envelope system for nearly one month & I am surprised at how much money is still in the envelopes! That means that we are doing something right!

Gina January 30, 2011 at 5:10 pm

We use the cash system for the categories that are the most challenging for us (eating out, entertainment, etc.). It has really helped us spend less, especially my husband. I think the only thing that has been hard is not having cash on-hand for unplanned things (like a few weeks ago when I ended up on a toll road unexpectedly!).

Good luck! I can’t wait to see how it goes at the END of the month :)

Kristi January 31, 2011 at 7:41 am

That Gina! I am going to be writing a one-month update post today so be sure to check back in to read it!

Erin February 1, 2011 at 4:29 pm

I do have to say, it’s really scary to do this if you’ve never done it before – if you’re trying it for the first time and it makes you feel less shaky to keep your credit cards for emergencies and such, then do that! I put a post-it on my credit cards with a warning note – Do you REALLY want to do this? It makes it kind of embarrassing to pull out the credit card, so I don’t do it as often.

As an online deal-finder and website manager, I buy almost everything online (including food, entertainment, etc), so getting rid of my cards didn’t work as well for me.

Good luck!!

Kristi February 1, 2011 at 5:05 pm

Love the idea of the reminder note on your credit card! We have a system for online purchases. If there is something we “need” online and we have the money in the envelope for the purchase, then we can purchase it with the debit card. We have to pull the money from the envelope & then deposite the cash into the debit card/checking account to account for that purchase.

Beth February 15, 2011 at 1:45 pm

Great tips. This is something we need to institute in my household.

Louise Ducote November 29, 2011 at 5:53 am

I love the envelope system; I’ve been using it for about six years. I like to also keep an envelope for something “extra,” and if I end up with extra cash from one of the regular envelopes, I get to add the leftover cash to the special envelope. So I’m motivated to try to end up with something to put in that one, especially right now because it’s labeled “trip next summer.” Visiting from SITS — congrats on your day!

Kristi November 29, 2011 at 6:45 pm

Great idea! I love the idea of using it for Christmas Cash or Vacation Money! Thanks for stopping by!

Kavuli November 29, 2011 at 6:30 am


I love this idea of a cash envelope. I would like to use this method for our entertainment expenses and see how it works for the new year. Well done!

Kristi November 29, 2011 at 6:45 pm

That is a great idea. We started off just doing it for dining out and then went full throttle last January. Thanks for stopping by!

Leslie, the cleaning coach November 29, 2011 at 7:19 am

Great idea! I need this – bad. Can’t wait to give it a try.

Barbara November 29, 2011 at 7:44 am

Cash is so real. Great tips here. Reminds me of the years I grocery shopped with a certain amount of budgeted cash and many times when my husband and I would have certain items on the backside of the little black rubber divider thing – get a subtotal – and then one by one add the “extras” until we hit our total. Patient checkers. Careful shoppers. But we did it.

Kristi November 29, 2011 at 6:47 pm

Good for you. I am still amazed at the looks I get when I pay in cash. I was told by a store manager that only 12% of their customers pay in cash. Amazing. Thanks for stopping by!

Sarah November 29, 2011 at 9:07 am

My husband keep thinking about switching to this system. Thanks for the tips!

maggie November 29, 2011 at 10:06 am

Love the cash envelope system! We’ve been doing this for years and it’s been awesome!

Marie Cole November 29, 2011 at 10:30 am

Ohhhh great idea, but it wouldn’t work for me, I use my credit card for everything, I am not a cash person at all. :)

Stephanie @ Our Marriage Adventure November 29, 2011 at 11:27 am

Ohh I love MINT! I have to admit we have tried the envelopes and it just doesn’t work for us, but daily monitoring through Mint does.

Happy SITS day!

Jacki November 29, 2011 at 11:43 am

I have really considered doing this, but I have to say, I have been really worried about carrying all that cash around with me. How do you all handle that?

Kristi November 29, 2011 at 6:48 pm

I only carry what I need. My envelopes stay at home. This makes you really have to think before you shop. Most of my spending was impulse buying so planning ahead took all the stress of impulse buying away.

Roses daughter November 29, 2011 at 12:30 pm

I love this idea! I’m going to start using it next month as a dry run to use it in the new year. Great post! And happy SITS day!

Aly ~ Cooking In Stilettos November 29, 2011 at 6:03 pm

I am always afraid of using the envelope system because I get cash back when I use the debit card. However, I think I am going to take the plunge come January – something needs to get this budget under control.

Happy SITS day!

Kristi November 29, 2011 at 6:49 pm

Best of luck with it. I think once you start it, you will be amazed at how much money you’ll still have in your envelope at the end of each month. It totally changes the way you look at money and the purchases you make.

Joanne November 29, 2011 at 9:03 pm

That is good advice. My parents used that system. Happy SITS day!

Mz.Dolphin November 29, 2011 at 11:17 pm

this is great idea. I also use this system but on a different way. I use envelope to “hide” the cash from over spending it AKA my “second” bank deposits.I am part of a social group where we provide services to the public for their wedding / any religious events ( as a part-time ) . The host will gave us some tip and that tips went to the envelope I’ve prepared. At the end of the month, half of the cash in the envelope went to my saving bank and the other half is going to be my extra expenses for the following month so I can withdraw less from my salary that month.

Heather December 1, 2011 at 12:04 am

Great idea!

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