How To Use Cash Envelopes And Get Control Of Your Spending

My husband and I started our budgeting journey a couple of years ago. It was a way for us to control what we were spending because we both made a good salary and we both sometimes would go a little overboard in our spending!

I can remember what finally made us start controlling our spending and that was when we took a Faith and Finance class. We both knew how to make a budget, we both knew what our bills were (and made sure they were paid) but we were not being good stewards with our money.

With Faith and Finances, we finally woke up and figured out how much extra we were spending just because we were not telling our money where to go. Once we buckled down and made a budget, we got control of our finances and started saving a lot more money!

In this post I am going to elaborate on how to use cash envelopes to control your spending. You might be asking: what is a cash envelope system? How do I use the cash envelope system? And will they even work??

I will answer all that and more. Stay tuned!

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What Is The Cash Envelope System?

The cash envelope system is using cash to pay for your items rather than a credit card or debit card. At the beginning of the month (or bi-weekly, depending on how you do this), you will take your budget, determine what your cash envelopes will be, and stuff them with cash. That is your spending money in those certain categories.

How Do I Use The Cash Envelopes?

This is going to look different for everyone and it really depends on what you determine your cash envelopes to be, but I will tell you how my family uses cash envelopes, and I will give you some more ideas as well.

We use cash envelopes for categories in our budget that are easy to overspend on, like groceries. Some people use cash envelopes for literally everything, like utilities, mortgage or rent payments, clothing, etc. This is a great practice as well. We do this to an extent, we just use different bank accounts to "cash stuff' rather than pulling the money out in cash for items that go through our account automatically, like our mortgage and utility payments.

Before you go the bank and withdraw out all your cash, you need a budget. Cash envelopes will not work if you don't have a budget.

I have a great post on how to create a budget if you don't have one yet.

You will need to know which of your bills come out automatically and make sure you keep enough in your account to cover those. The rest could come out in cash to go in your cash envelopes.

Cash Stuff the Important Items First

1. Utility Bills

2. Groceries

3. Car Payments

4. Any bills that don't come out automatically

Once again, it depends on how your bills are set up currently. All of our bills are all automatically drafted out of the account each month which is why we only cash stuff for groceries and other savings items.

Your goal here is to take out the rest of your money in cash and divide it up among your envelopes. Maybe you're saving for a big clothing purchase, or to get your hair done. Get an envelope out and put some money in there!

I bought this cash envelope system in 2023 and it came with a ton of categories to choose from! Plus it also came with little budget sheets that you could record expenses on for each category. It has been a great purchase so far!

Do Cash Envelopes Work?

Cash envelopes are amazing! I can tell you that using cash envelopes have saved me numerous times. Cash also helps me get a handle on what we spend our money on as well. Once we are done with the cash in the envelope we get creative! It's actually kind of fun to see where we can cut our spending when we are getting close on our grocery budget.

I will tell you though that cash envelopes only work if you are diligent about using them. If you take cash out but you still have a credit card on you at all times, you can easily whip that thing out and use that instead which will defeat the whole purpose of cash stuffing and potentially make your finances worse!

I won't lie, it's been difficult to stick to our budget at times and use our cash. In the world of where we can get everything we want right now, but I'm telling you that you need to wait and save up for it, it's hard! However; this just shows that you are adulting!

Envelopes For Beginners

Step 1: List out your budget categories.

Step 2: Set a spending limit

Step 3: (only needs to be done once if you use the ones above that I recommend!) Label your envelopes

Step 4: Stuff your envelopes with cash

Step 5: Use ONLY the cash in the envelopes for that specific budget category

Step 6: Avoid overspending

Step 1: List out your budget categories

Much like I talked about above, make sure you have your budget categories figured out before you begin your cash stuffing. Groceries, rent, bills, etc. 

Step 2: Set a Spending Limit

Assign a limit to each category. Our limit for groceries and personal care items is $700 a month, so I split this up bi-weekly and take out $350 each time. I have found that if we take $700 out at the beginning of the month we tend to run out faster! Not sure why, probably because it's easy to go ahead and purchase things that we need, but not necessarily right that second. I like to consolidate my trips to the store because I have three kids (LOL).

Step 3: Label your envelopes

You can make your envelopes with simple white envelopes that you can purchase at the store, or you can use the budget binder system that I bought last year! These envelopes have lasted a very long time and they will certainly last longer than a normal white envelope, trust me, I've done it both ways! This system is less than $10, too, and you can get all set up with your cash envelopes in no time!

Step 4: Stuff your envelopes with cash

Withdraw all the leftover cash from your paycheck (again, make sure you leave enough in your account to cover any bills that come out automatically) and next, divide it up into your envelopes.

Step 5: Use ONLY the cash in the envelope for that specific category

What this means: don't borrow from other categories because you run short in another. Once cash is in a specific envelope, that is where it stays! Keep track of your spending in that category using an expense sheet.

Step 6: Avoid overspending

When you limit yourself to the cash that is in the envelope, you avoid overspending. It also makes it seem more real when you use actual cash rather than your debit card! It's harder to part with that $20 bill in your pocket rather than just swiping a card for $20.

What do I do with leftover funds?

You can do a lot with the leftover funds that you have in each category. If I have leftover cash in my envelopes I usually leave it in there for the next month. If we don't necessarily need extra in that certain category, then I will take it out and maybe repurpose it among other categories.

Save it

Personally, I think you should take what you didn't spend in that category and put it towards something else, like one of your sinking funds! I'm sure you have something big that you are saving for, so a couple of extra bucks will help get you to your goal.

Spend It

You could always spend it on something else if you want, as well. This is YOUR money to do with what you want. Put it in your spending fund or maybe your entertainment fund and go do something fun!

Keep it in the same envelope

You also could keep it in that envelope for future months! Then your funds will keep growing in that particular category. It depends on the category you are using. Is this something that you will need again in the future or is it a one-off or once a year type expense?

Pay towards debt

This is my second favorite way to use extra money! Anything helps when you are trying to get yourself out of debt. If we aren't saving our extra funds, then we are putting extra money toward our debt.

Adjusting your budget

The first month is not going to be perfect. You will most likely go over your spending categories and that's okay! Maybe that means you didn't allocate enough to that particular cash envelope. Calculate how much you went over and try again next month!

Try not to borrow from other envelopes, but if you're getting down to the wire and you need some more money in your grocery budget, get creative! Maybe you can borrow a teeny tiny bit from another category to get you by. Maybe you get by on cereal for a few days or peanut butter and jelly.

Spending intentionally

The point of cash stuffing is to spend money intentionally. Don't just keep spending just to get rid of it by the end of the month. It can be hard if your natural inclination is to spend instead of save. I get that, I married a spender!

Keep working on it every month and you will get there. Soon you will be a cash stuffing guru and saving for all the things!

Let me know in the comments what you like to save for!