Cash Envelope System for Beginners (Get Started in 3 Easy Steps)

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Last Updated on June 25, 2022 by Rebecca Lake

Looking for a guide to the cash envelope system for beginners?

The cash envelope budgeting method involves dividing up cash into different envelopes, which are earmarked for specific spending categories. Once you spend all the money in a particular envelope, you can’t spend any more in that category until the new budgeting period begins. 

The cash envelope system can be a useful way to manage your finances if you’ve struggled to keep credit card debt under control. 

Using a cash budget can make it easier to keep track of spending. This cash envelope system for beginners guide can help you start using the cash method to take control of your money. 

Related post: Why Is Budgeting Important? (10 Life-Changing Benefits of Budgeting)

What Is the Cash Envelope System?

blue envelope full of cash
Cash Envelope Budget

The cash envelope system is a budgeting method that encourages you to use cash to make purchases. 

Research has shown that spending with cash forces you to slow down and think about your purchases. Spending with credit cards, on the other hand, can tempt you to overspend and rack up debt. 

So who should use the cash envelope system for beginners?

Cash envelope budgeting could be ideal for people who want to keep a closer eye on their spending. It can also be good if you want to take a break from spending with credit cards or debit cards. 

If you’re looking for some cash envelopes to get started, be sure to check out the cute options in the Boss Single Mama shop!

Benefits of the Cash Envelope System for Beginners

Using cash envelopes to budget can help you financially in a number of ways. Here are some of the main advantages of the cash envelope system for beginners.

1. Avoid overspending

Budgeting often gets a bad reputation because people think it means you can’t spend money at all. But that’s just not true.

Using the cash envelope system gives you the freedom to spend–responsibly. 

When you use the cash envelope system, it’s up to you to decide how much money goes into each of your envelopes. And it’s also up to you to decide how to spend the cash in each envelope. 

Cash envelopes put you in the driver’s seat with budgeting and they can help you to stay accountable to your budget.

2. No more guessing where your money goes

Have you ever gotten paid, then a few days later checked your bank balance and wondered where it’s all gone?

It’s easy to lose track of how much you’re spending when you’re using your debit card or credit card everywhere you go. The cash envelope system eliminates that problem.

Each time you spend money in one of your envelopes, you make a note of the purchase on the envelope itself. This allows you to keep track of how much cash you have left to spend. You can simplify this process using a cash envelope wallet.

Cash envelopes let you see at a glance what you’ve spent at any time and on what. So there’s no guessing about where it’s gone. 

3. More accurate budgeting

Having a budget is important for making the most of your money. But your budget only works if it’s accurate. 

If you’re forgetting about purchases, for example, that can throw your entire budget off. You could end up running short of money or having to delay paying a bill.

With the cash envelope system, you can use the envelopes to shape your budget for the next month.

At the end of the month, you can round up all of your envelopes, then look at what you’ve spent. Maybe you have money left over in one envelope. Or maybe you had to borrow from one envelope to cover your spending for another budget category. 

This is a simple technique that can help you fine-tune your budget and avoid wasting money. 

4. Encourages you to live within your means

Living within your means simply means spending less than what you make each month. When you live beyond your means or above your means, you spend more than you make and likely have a pile of debt to show for it.

The cash envelope system is designed to encourage mindful and intentional spending.

Rather than throwing money away on impulse or wasteful purchases, the cash envelope method makes you stop and think about where you spend money. 

Instead of meeting your wants first, then your needs, you focus on needs first. 

You might even challenge yourself to not spend all of the money in your envelopes each month. That can be an easy way to trick yourself into saving.

Related post: No Spend Challenge: 10 Simple Tips to Help You Save More Money Now

5. Less reliance on credit cards 

Credit cards can offer a convenient way to spend and some even pay you back with rewards. But they can also leave you with expensive debt. 

According to the Federal Reserve, the average American household has $6,270 in credit card debt. 

If you’ve been using credit cards and you’d like to wean yourself off of them, the cash envelope system can help.

By committing to only spending cash, there’s less temptation to turn to credit cards. And that means less opportunity to run up high-interest debt. 

6. Easier to save money

Using cash envelopes can help you save money if you’re disciplined about keeping track of what you spend and sticking to your budget. 

The amount you might save may not be huge. For example, you may budget $500 for groceries but spend $475, leaving you with $25 to save.

But over time, small amounts can add up. 

Consider this example:

Say you’re able to save $100 per month in cash using the cash envelope system. You deposit that money into a high yield savings account earning 0.60%.

You do that every month for 30 years and you’ll have $39,552.42 in savings

When you save regularly, even in small increments, you can make a big impact on your finances over time. 

Bottom line, the cash envelope system can provide greater peace of mind if you’ve struggled with budgeting in the past. Once you learn the cash envelope method, it’s fairly easy to stick to, which is usually the biggest challenge of budgeting for most people.

Related post: 100+ Budget Categories to Help You Build a Smarter Budget

Cash Envelope System for Beginners: Getting Started

woman making a budget with the cash envelope system for beginners

Starting a cash envelope system as a beginner doesn’t have to be difficult. Here’s how to start cash envelope budgeting step by step. 

1. Track your spending

In order to decide which cash envelope categories you need and how much to budget for each envelope, you first need to know where you’re spending your money. So the first step to cash envelope budgeting is keeping track of your expenses. 

You’ll want to track spending for at least a month. This way, you have an accurate snapshot of what you spend.

Remember, this includes all the money you spend. So when tracking expenses, be sure to include purchases made with:

  • Debit cards
  • Credit cards
  • Electronic bank transfers
  • Mobile payment apps
  • Cash

You can simplify things using a free budgeting tool like Personal Capital. Personal Capital allows you to link your financial accounts so you can track spending in one place. 

Looking for a simple money management tool? Empower makes it easy to track spending, saving, investing, and budgeting in one place so you can tackle your financial goals!

2. Establish your cash envelope categories

Once you’ve gotten a handle on your spending, the next step is deciding which cash envelope categories to include. The categories you assign to your cash envelopes will depend on your spending habits. 

Cash envelopes typically work best for expenses you have month after month, though you could use them for seasonal expenses as well, such as holiday spending. 

Here are some of the most common cash envelope categories you might get started with:

  • Groceries
  • Gas and transportation
  • Self-care/personal care
  • Clothing
  • Entertainment and recreation
  • Dining (other than groceries)

You might also set up cash envelope categories for special expenses or ones you only pay occasionally. For example, you could use cash envelopes to hold money that goes into one or more sinking funds categories

Here are some additional cash envelope categories you might consider:

  • Pet care
  • Holiday spending
  • Gifts (for birthdays or special occasions other than the year-end holidays)
  • Vehicle maintenance
  • Health care
  • Home maintenance
  • “Fun” money

For some sinking funds, it can make more sense to keep your cash in the bank. A high yield savings account, for example, is safe and secure. And you can earn a great rate with the right savings account. 

You might use cash envelopes to hold amounts for expenses of $500 or less, then switch to a savings account for sinking funds categories over $500. 

Related post: Free Printable Sinking Funds Tracker

3. Assign a dollar amount to each category

After you decide which cash envelope categories to use, you’ll go back to your budget and assign a dollar amount to each one.

When setting dollar amounts, use your previous month’s expenses as a guide. If you’re worried about putting too much or not enough cash in each envelope, you might review bank statements for the previous six months.

That can help you see how individual spending categories trend over time. If you notice that you’re consistently spending around $500/month on groceries, for example, then you can use that as your baseline for your grocery cash envelope

Adjust your cash envelope strategy as needed

If you’re trying out the cash envelope system for beginners, it can take some getting used to. And you may need to do some tweaking for the first few months to figure out the right amount to keep in your envelopes.

Scheduling a monthly budget review can help you to see what’s working and what’s not. 

You can look at each cash envelope to determine:

  • Where you’re spending money most often
  • How much you’re spending on average per envelope category
  • Whether the amount you spend is over or under-budget

Depending on what you see, you may decide to add envelopes, get rid of others or adjust the dollar amounts for each one. 

Experimenting can help you fine-tune the cash envelope system for beginners so you’re able to stick with your spending plan each month.

Related post: 50 30 20 Budget Explained (An Easy Way to Budget for Beginners)

Cash Envelope Wallets

How Many Cash Envelopes Do I Need?

The number of cash envelopes you’ll need will depend on how many categories you have in your budget and how many of those categories allow you to spend with cash. A good number of cash envelopes to start with may be 5 to 10. 

Using more cash envelopes might be best if you have a lot of variable expenses in your budget. 

Variable expenses are expenses that fluctuate from month to month. So you might spend more or less on groceries in a given month, for example.

Fixed expenses are expenses that don’t change or change very little each month. That can include things like your rent or mortgage payment, utilities and any debt payments you might have. 

On the other hand, using fewer cash envelopes can make it easier to keep track of spending. And it can help you to eliminate some variable expense categories from your budget that you don’t necessarily need to spend money on.

The best approach to the cash envelope system for beginners may be experimenting with different numbers of envelopes for two to three months. That can help you figure out the right number of cash envelopes to use. 

👉If you’re looking for some cash envelopes to get started, be sure to check out the cute options in the Boss Single Mama shop!

Cash Envelopes vs. Digital Envelopes

You might be wondering if you can use the cash envelope system for beginners if you prefer to spend with a debit card. And the answer is yes.

Budgeting apps like Qube Money allow you to set up digital cash envelopes and track your spending automatically. You just have to link your debit card or bank account to the app first. 

So, are digital envelopes better than cash envelopes?

You might prefer digital envelope budgeting if you’d rather not carry large amounts of cash with you. And having an app track your spending and available cash totals means less hands-on recordkeeping for you. 

Again, though, spending with a debit card doesn’t have the same psychological impact as spending with cash. So you have to be careful with digital envelopes to avoid overspending. 

Related post: How to Budget Using the Digital Envelope System

Cash Envelope System for Beginners FAQs

Are cash envelopes a good idea?

A cash envelope saving and budgeting method can be a good idea for people who need help controlling and tracking spending. The cash envelope system is designed to make it easier to track every dollar in your budget so money doesn’t go to waste.

How do you start cash stuffing?

“Cash stuffing” is a TikTok trend that involves paying for expenses with only the cash you have on hand. It’s essentially a new take on the cash envelope system.

If you want to start cash stuffing, try these tips:

  • Pick just a few expenses to start with
  • Round up the cash you plan to use to pay those expenses (divided by denominations)
  • Assign expense categories to individual envelopes
  • Stuff each envelope with the amount of cash you’ve budgeted for that expense

Again, cash stuffing is really just an updated take on the old-fashioned cash envelope method. Check out this video for more on how it works.

@cashstuffingfix #cashstuffing #cashenvelopes #budgetingtips #adhdtok #adultadhd #FritoLayRickRoll #StepandFlex #k18hairflip ♬ original sound – CashStuffingFix

How much should I put in a cash envelope?

The amount you should put in a cash envelope should equal the amount you’ve budgeted to spend for that envelope category.

Your cash envelopes may have equal amounts but it’s more common for one envelope to have more money than the rest. For example, you might put more money in your grocery envelope and less in your gas or recreation envelopes.

When dividing up cash to stuff your envelopes, make sure you double-check the amounts against what you’ve budgeted. And don’t forget to deduct purchases as you go, so you always have a running tally of what’s left in each envelope.

What do you do with leftover money in cash envelopes?

If you get to the end of the month and there’s money left in your cash envelopes, there are a few things you can do with it.

For example, you could:

  • Roll it over to your cash envelope amount for the next month
  • Add it to a savings account
  • Use it to pay down debt
  • Spend it on something you hadn’t budgeted for

Rolling leftover money over means you have more money to spend in that category for the next month. That could be a plus if your spending sometimes fluctuates.

Using leftover envelope money to splurge can be fun. But you may get more benefits from saving it or using it to pay down debt instead.

cash envelope system for beginners pinterset image
Cash Envelope System for Beginners

Final thoughts on the cash envelope system for beginners

Using cash envelopes to budget can take some getting used to. But it can be an effective way to manage your monthly spending without relying on debit or credit cards.

Do you use the cash envelope method to budget? Share your experiences in the comments.

Before you go, be sure to check out my favorite Smart Money Tools for making and saving money! And sneak a peek at the cash envelopes listed in the Boss Single Mama shop!

Need more help with budgeting? Read these posts next:

Cash Envelope System for Beginners

About Rebecca Lake

Rebecca Lake is a Certified Educator in Personal Finance, freelance writer and homeschooling single mom of two. Since 2014, she's paid off nearly $100,000 in debt and grown her net worth to seven figures. Her work has appeared online at top personal finance websites, including Forbes Advisor, Bankrate, Investopedia, The Balance, and U.S. News & World Report. Find out more.

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