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If you’ve been around money saving blogs a time or two then you’ve probably heard about this “Cash Envelope” phenomenon.  In fact, you might be part of the Dave Ramsey cult if you subscribe to such ideas (I kid, I kid.  There is no cult).  When I first started using this system, I had many questions such as what on earth is it, how does it work, and what are the pros/cons of implementing this system.  Thankfully, I have lived to tell the tale and have answers to these questions!

What is the cash envelope system?

The cash envelope system is when you look at your budget and decide what categories you would want to purchase in cash rather than a debit or credit card.  Not every category lends itself to being purchased in cash.  For instance, I wouldn’t recommend you pulling cash out of the bank to pay your cable or phone bill.  Below are the categories that our family usually pulls out cash for:

  • Food: Groceries
  • Food: Restaurants
  • Car Maintenance Sinking Fund
  • Haircuts
  • Fun Money
  • Clothing
  • Home Maintenance/Repairs
  • Entertainment

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How does it work?

Every month after our budget has been made, I look at how much I want to pull out in cash.  I decide what denominations (hundreds, twenties, tens) I want my money in and keep a tally sheet so I know the total amount of bills I need.  Then, I go to the bank and withdraw that exact amount and the denominations that I want.  I place each category into an envelope and bring that envelope with me when we need to spend that money.  For instance, if I know that I plan to spend $600 this month on groceries, then I will go to the bank and pull out $600 and place it in the envelope labeled “Groceries.”  I will take this envelope to the grocery store and use this cash all month for just groceries.  Once the money is gone, it’s gone.  This forces you to be careful with your spending and not overspend.

Pros of the cash envelope system

  • Stay On Track: If you stay committed to only using the money that you budgeted for each category, then you will, without a doubt, stay on track each month financially.  It’s a great plan if you stick to it and don’t spend money that is not in the envelope.
  • You Might Spend Less:  I tend to find it more difficult to spend cash than hand over my debit card.  I see the money right there.  I know it’s worth.  In fact, I can count exactly how much I have left and it helps me make more clear decisions about how I plan to spend my money.  Spending cash is harder, therefore I don’t usually spend as much.

Cons of the cash envelope system

  • Worries and Fears: I will not lie to you.  The idea of using the cash envelope system when I first started budgeting terrified me.   I was always worried that someone would rob me right when I walked out of the bank.  Paranoid much? I would also see the amount in my checking account decrease radically after my money was taken out.  Thoughts swam through my mind.  What if I didn’t have enough at the end of the month?  What if I have no cash and no money in the bank?  These were all legitimate (at least I think they were) fears that I had.  It took me trusting the system and seeing a difference in my spending to get over these anxieties and accept that my cash envelopes served their purpose.
  • Less Spontaneity: You should be prepared and have your money by your side if you plan to spend.  Spontaneous spending is not very possible on a cash envelope system, but if you are trying to get out of debt and save money then spontaneous spending might not be the best idea anyway.

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Is it really for you?

Honestly, this is a question that you will have to answer.  If you are wanting to stick to a strict budget and spend less, the cash envelope system very well could be right for you.  I can tell you that our financial awareness changed dramatically when we started this system.  And even though we have been debt free (if you want to read that story, click HERE) for over a year now, we still take money out each month in cash to help keep us in check.  

I’ve created some FREE printable envelopes just for you!  This freebie has envelopes with inspirational quotes and envelopes to track your spending.  Get it by signing up for the Budgeting Basics Email Course below.  The course also includes information on how to budget, save money, and pay off debt.  This awesome freebie also includes the debt free thermometer printable and the debt snowball spreadsheet!

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19 Comments on Cash Envelope System: Your Questions Answered!

  1. This is such a great system! We love Dave Ramsey and have read many of his books. Budgeting has been great for our family… you really don’t realize just how much unnecessary money you spend when you can swipe that piece of plastic. Great post!

    • Brittany you are so right! I realize that our family was spending hundreds of dollars each month when we didn’t budget properly. Glad you liked the post!

  2. Hi! love that I found this and cant wait to use. But how do you use the last 2 envelopes that say amount on them with lines? are they for something different?

  3. Hi! I just signed up for the free email course and we’re excited to start the envelope system. Our paychecks are on alternating weeks so we get paid every week. What would be the best way to budget?

  4. Thanks for your post. I’ve been using sinking fund/cash envelopes since August but I think I want to try and rely solely on what is in the envelope for the month, that way I can see how my spending is going. My question is, what do you (or did you) do with money left over in the envelope? Do you put that towards debt and restart for the next month? Or do you have a balance forward and just decrease the category for next month? Thanks.

  5. Question Allison: what do you do with all of your receipts? Currently I am putting them in the envelope for the month but i’m not even sure why. Should i get rid of them once i log them (besides important ones obviously)? Let me know thoughts. Thanks!!

  6. How does a married couple do the cash envelopes? Sometimes my husband will swing in on the way home for some grocery items. Do people use the debit card / general spending and then take the cash in that amount from the envelope and deposit it? I can’t wrap my mind around how my husband and I can “share” envelopes…….

    • I know that can be difficult! To be honest, it takes a lot of planning in advance and communication. If not, one person will have to run home first to grab the envelope before they go to the store or buy something!

  7. Do you actually take $600.00 to the grocery store or do you divide it by four weeks and just take that amount? I would be paranoid to take that much money to the store. Also, what do you do when your car needs gas? Do you pay in cash with your car sinking fund envelope?

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