Seeing is believing.
That’s why, in this digital age, it’s so hard to believe how fast we spend all of our money because out of sight, out of mind.
If you’re really struggling to get out of debt, get back to the basics, try the cash envelope system.
In this post, you will discover:

  • What is the cash envelope system
  • How to use a cash envelope system
  • Free cash envelope templates

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cash envelope system explained and free templates

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What is a cash envelope system?

The cash envelope system is an old-school way of handling your money that’s stood the test of time because it works.

In a nutshell, the system involves you cashing your paycheck and then dividing the money up into different envelopes based on category, such as rent/mortgage, groceries, transportation, and so on. As you spend on any of these categories, you take the money out of the corresponding envelope.
If you need to or want to spend from a category that’s run out of funds, you either have to forego the spending or take the money from another envelope. If there is no money in any of the envelopes to take from, that’s your cue to stop spending.
free cash envelope template printables

Why should I use cash envelopes for budgeting?

Budgeting is a great tool for managing your finances, but one of the biggest drawbacks is that you usually don’t know you’ve gone over-budget until it’s already too late.

Cash envelopes are the best to get immediate feedback on whether or not you are blowing past your budgeted amount. As you spend and deplete your envelope, you’ll see right away if you’ve reached $0 and have to stop spending from that category.
On top of that, humans are actually naturally wired to hoard resources, but it’s super easy for us to spend money nowadays because it’s all digital and we don’t truly sense that we are losing something.
If you use physical cash, though, there is a very tangible reminder that you are sacrificing something, which has a tendency to make you hesitate and at least think twice before you make the spend.
That short delay can make all the difference between you blowing through your money, and you pumping the brakes and deciding to save the money instead.

Cash envelope systems are great because they’re super cheap to implement, easy to understand, and so simple to follow that you can even use it as a tool to teach kids how to budget.

free cash envelope printable template floral botanical

CLICK THE IMAGE ABOVE TO GET FREE CASH ENVELOPE TEMPLATE PRINTABLE

How do you use the cash envelope system

Step 1. Decide what budget categories you’ll need envelopes for

Some of the most common categories that people use include:

  • Housing (rent, mortgage, utilities, etc.)
  • Medical (insurance, doctor’s visits, medications, etc.)
  • Childcare/pet care
  • Transportation (car payment, gas, maintenance, etc.)
  • Groceries

Whether or not you have more expenses beyond that varies from person to person. For this system to work, you’ll need to make sure you account for all expenses that you reasonably expect to spend on, so it helps to look at a more extensive list of budget categories to make sure you’ve got everything.

Step 2. Figure out your budget amount for each category

Some expenses are set each month and easy to figure out, like your rent or car payment amount.

For other expenses that vary in amount from month to month, start with an educated guess and make adjustments each subsequent month if needed.
This step may take a little bit of trial and error, or you can try tracking your expenses for a few months first to get a good sense of what you really spend.

cash envelope pink blue chevron

CLICK THE IMAGE ABOVE TO GET FREE CASH ENVELOPE TEMPLATE PRINTABLE

The key thing is that the total amount you budget across all of your envelopes should not exceed the total you get paid each month.
If you add up all the cash envelope totals and it is greater than your monthly pay, you need to reduce your budget in one or more categories until they all equal less than what you’ll bring in.
Ideally, you’ll want to get to a point that your budgeted amounts are well under your monthly income.
Any money you have that doesn’t get put into an envelope can be put towards meeting your other goals, like beefing up your emergency savings or paying down debt.

free cash envelope printable template abstract botanical

CLICK THE IMAGE ABOVE TO GET FREE CASH ENVELOPE TEMPLATE PRINTABLE

Step 3. Fill your cash envelopes as you get paid

If you get paid bi-weekly, put 50% of what you budgeted into the envelope every time you get a paycheck.

For example, if you budgeted $100 for transportation, put $50 in that envelope each time you get paid.

If you get paid weekly, put 25% of what you budgeted into the envelope instead.

TIP:

If you want to avoid the hassle of using real cash, pretend money makes for a great alternative.

That way, you can still divide out your money between the envelopes and move it around, without having to actually hit up the bank to replenish your money every time you get paid.

free cash envelope printable template hexagon

CLICK THE IMAGE ABOVE TO GET FREE CASH ENVELOPE TEMPLATE PRINTABLE

Step 4. Spend only what you have in the appropriate envelope

When it comes time to pay for a bill or expense, pay for it out of the appropriate envelope. That does mean you should have the cash envelope with you, so it may help to get a cash envelope system wallet.

If you don’t have enough money in that cash envelope, you can either choose not to make the spend at all (preferred), or you can take the money from another envelope.

Understand, though, that doing the latter means you will have less to spend on that category, so it’s best to use this option only if the spend is truly necessary.

If you pay for a bill or expense online or digitally, take the money out of the corresponding envelope anyway as if you were paying with cash. This will ensure that you don’t spend more than you intended for that category.

free cash envelope printable template watercolor floral pink

CLICK THE IMAGE ABOVE TO GET FREE CASH ENVELOPE TEMPLATE PRINTABLE

Step 5. Adjust as necessary

If you’ve never budgeted before, you aren’t going to get your cash envelope system perfect on the first try, and that’s totally okay.

It is always good to take a moment at the end of each month to reflect and see if you need to make adjustments. Here are some common reasons why you might change what you allot:

  • You anticipate having an expense that you didn’t have the prior month (ex: birthday gift for someone)
  • You are consistently not meeting budget for one of your categories (after adjusting, make sure your total for all envelopes is still under your monthly income)
  • You want to reduce your budget in one or more areas to challenge yourself to spend less (good for you!)
free cash envelope template printables

Free cash envelope templates

Need something simple yet pretty to hold your cash that you can easily DIY? Grab any of our gorgeous, chic cash envelope printables to show off that you’re budgeting in style.

Cut along the outline of the envelope. To assemble, fold in flaps (each side and top of envelope) and tape or glue the sides to create the envelope pocket.

Grab all 5 templates in a single pdf by clicking the download button below. Please help us share this free printable to your favorite Pinterest board or on Facebook so others may use this free resource as well. Thank you!

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Conclusion

Push the envelope on your finances with the cash envelope system! Download our free cash envelope printables or get yourself a cash envelope system wallet and start taking control of your spending. By budgeting with cash envelopes, you can seal the deal on saving money!

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AUTHOR BIO

Sylvia, aka Mama Chang, is a personal finance blogger out to prove the possibility of navigating high-cost living on a low-cost budget. Paid off college and condo in her 20's on under $55k salary. She wants to teach others how optimize money to maximize quality of life. Dual income with kids, based in Hawaii.

Hangs out on Keeping Up with the Changs: Pinterest