December 11, 2023

How to Save Money Using the Cash Envelope System

Budgeting can be a challenging task. When you can tap to pay with a debit or credit card essentially anywhere and your computer makes any purchase just a few clicks away, it isn’t getting any easier to track your spending.

But what if there were a simple way to budget using plain cash? Enter the cash envelope system. We’ll give you the lowdown on the pros and cons of saving the old-fashioned way.

What is the envelope system?

The cash envelope system, aka the cash stuffing method, is a time-tested approach to budgeting that uses envelopes to allocate physical funds for different spending categories.

You can keep separate money-saving envelopes for groceries, entertainment, transportation, and other essential expenses. Each envelope holds a preset amount of cash, which becomes your spending limit for that category over a set amount of time, like a week or a month.

Benefits of the cash envelope system

Using cash envelopes for budgeting offers a few unique advantages that just might transform your financial planning.

For starters, using physical cash gives you a tangible connection to your spending, which can lead to greater financial awareness and more mindful consumption. This system also naturally helps prevent overspending, as the envelope provides a clear spending limit. You can’t go into credit card debt if you only use cash.

Cash envelopes can also foster better communication about money within couples and families — if anyone needs to know how much is left for a given budget, they can just check that envelope — encouraging better saving habits, and improved financial well-being.

Challenges of the cash envelope system

The cash envelope system has some time-tested benefits, but it’s not without its difficulties. Carrying around physical cash can be inconvenient and even unsafe. Keeping track of various envelopes and correctly allocating funds can also be time-consuming. Frankly, like most budgets, it requires discipline.

Perhaps the most challenging is the attempt to get by with cash in an increasingly digital world. You’re probably accustomed to online shopping on Amazon,, and other similar sites — and we all know they don’t accept physical money.

The envelope system may not suit everyone’s routine and lifestyle, so weigh the pros and cons before you fully commit.

How to get started with the cash envelope system

The cash envelope system is a straightforward process, but requires a bit of up-front planning and organization. Here’s how to start cash stuffing:

1. Build your budget

Begin by evaluating your monthly income and essential expenses. Categorize your spending into different areas, like groceries, entertainment, transportation, and dining out.

2. Set spending limits

Assign a maximum amount to each spending category based on your budget. Determine how much cash you’ll allocate to each envelope, ensuring the sum total doesn’t exceed your income. Consider taking a zero-based budgeting approach where no dollar is left unaccounted for.

3. Label your envelopes

Write the name of each category on an envelope. You can use physical envelopes or digitally track the categories if you prefer to manage your budget with a computer.

4. Allocate cash

Withdraw the cash you’ve allocated for each category from your bank account and place the assigned amount in each envelope. This physical representation of your budget will help you visually track your spending.

5. Stick to your limits

When you need to make a purchase within a specific category, use the cash from the appropriate envelope. Once the envelope is empty, you’ve reached your monthly spending limit for that category.

6. Adjust as needed

As the month progresses, you might need to reallocate funds from one envelope to another for any number of reasons. Flexibility is key; just make sure any adjustments you make don’t lead to overspending.

7. Review

At the end of each month, reflect on your spending habits. Take note of areas where you consistently overspend and or have leftover cash. Use this information to adjust your budget for the following month.

Cash envelope categories

Everyone’s expenses look different, but there are some categories you’ll likely need to account for:

- Groceries. This envelope covers essential food expenses for the month.

- Entertainment. Set a limit for leisure activities, like movies, dining out, and going out with friends.

- Transportation. Dedicate an envelope for transportation-related expenses like fuel, public transport, or rideshare services.

- Utilities and bills. Have an envelope for utilities, debt repayment, rent, and other fixed monthly expenses. Or, if these are paid digitally, you can leave this envelope out while accounting for the amount spent.

- Miscellaneous. Create an envelope for unexpected or irregular expenses that may arise each month.

Starting with a few key categories will make it easier to manage your cash envelope system. Over time, you can refine and customize the envelope categories to match your specific spending patterns and help you reach your long-term financial goals.

What to do when you shop and pay bills online

The cash envelope system focuses on physical transactions, so adapting it for online purchases and bill payments demands a slightly different approach. Here’s how you can keep using the cash envelope system for digital transactions:

1. Create digital envelopes

Use digital tools or budgeting apps to create virtual envelopes for your spending categories. Assign specific amounts to these digital envelopes just like you would with physical ones.

2. Transfer funds

When you make an online purchase or pay a bill, transfer the allocated amount from the appropriate digital envelope to your checking account. This ensures you have sufficient funds to cover the expense.

3. Monitor balances

Regularly check the balances in your digital envelopes to stay on top of your budget. This prevents overspending and helps you maintain control over your finances.

4. Set alerts

Some budgeting apps allow you to set alerts or notifications when you approach your spending limits in each category. These alerts serve as reminders to stay within your budget.

5. Record transactions

After making an online purchase or paying a bill, immediately record the transaction in your budgeting app or spreadsheet. This makes sure you don’t forget to subtract the amount from the appropriate envelope.

6. Adjust envelopes

If you consistently spend more in certain categories, you might need to adjust your digital envelopes accordingly. This could mean reallocating funds from other envelopes or revising your budget altogether.

Remember that the goal of the cash envelope system is to create a visual representation of your budget, whether it’s through physical envelopes or digital tools. Both can work, and by adapting the system to include online transactions, you can maintain better budgetary control and financial discipline.

Access your cash with EarnIn

If you run out of cash in a particular envelope, don’t worry — life happens! In these cases, an empowering, convenient tool like EarnIn can make all the difference.

If you ever need extra funds to replenish your envelopes or handle an unforeseen situation, EarnIn has you covered. Building your financial health has never been more convenient and empowering.

With our user-friendly app, you can access your pay as you work through the Cash Out tool — up to $100 a day and up to $750 every pay period. It’s like having a financial safety net at your fingertips, ready to cover day-to-day and unexpected expenses.

Download EarnIn today and get to know money at the speed of you with payday every day.

Please note, the material collected in this post is for informational purposes only and is not intended to be relied upon as or construed as advice regarding any specific circumstances. Nor is it an endorsement of any organization or services.

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