Creating a Cash Envelope System

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How To Create a Cash Envelope Spending System 

When it comes to getting out of debt, the number one thing you need to do is learn to control your spending.  Contrary to what many people say, the best way to do this is to use cash.  In fact, that is Step 3 in learning how to work yourself out of debt!

Before you proceed, it is important that you have already completed your Net WorthDebt Pay Down and Budget Forms.  It is just important that you have completed these steps as you will need to have your budget ready as you get ready for this step — Envelope Cash System.



Cash is King!!  I say this all of the time, but that is because it is something I truly believe in.  I honestly disagree with the statement “If I have cash, I spend it far too easily.”  It is in fact, the opposite.  I find that because I use cash, I spend more wisely.  When you have only $200 for groceries and you also know that your cash must last for 2 weeks, you really think twice before you buy that extra item.  Of course, with couponing, you usually are able to save and spend less, which can help, but you still should always use cash.

The first thing to do is take a look at your budget.  You should seriously consider using cash for the following items:

  • Groceries
  • Clothing
  • Dining Out
  • Hair Cuts/ Beauty
  • Doctor Visits
  • “BLOW” (which is your spend as you want – only if you can afford it)
  • Medicine
  • Doctor/Dentist Visits

You will notice that I didn’t include gasoline in my list.  The reason I didn’t is that most people won’t overspend at the pump.  Most of us just fill up our tanks and go about our merry way.  You also don’t drive around and burn fuel or decide to fuel up because your neighbor did.  This is a budgeted item, but not one where you might spend above your budget.  Not only that, it is usually much more convenient to pay at the pump.

When it comes to an envelope system, you can purchase an envelope system as sold by Dave Ramsey or you can just use the envelopes in your desk drawer.  Just note your categories on the outside of each one.

Next, you need to determine how much cash you need for each category each pay period.  For example, if you are paid every two weeks, take the total monthly grocery budgeted amount and divide it by 2, to figure out how much grocery cash you need.

Go through each category you plan on paying for in cash and determine the amount you need.  Then, figure up how many of each denomination of bill you will need and include a breakdown for the teller.  Go to the bank and withdraw that total amount in cash and divide it into each envelope.  Confused?  LOL!  No problem – here is an example:


$500 Groceries
100 Clothing
100 Blow
50  Doctor
12  Medicine
  100 Dining Out


$250 Groceries
50 Clothing
50 Blow
25  Doctor
6  Medicine
     50 Dining Out


Groceries:   14 – $20 bills   1 – $10 bill
Clothing:  2 – $20 bills  1 – $10 bill
Blow:  2 – $20 bills  1 – $10 bill
Doctor:  1 – $20 bill 1 – $5 bill
Medicine:  1 – $1 bill 1 – $5 bill
Dining Out:  2 – $20 bills  1 – $10 bill


$1 bills – 1
$5 bills – 2
$10 bills – 4
$20 bills – 21

Now that you have your cash are you ready to shop?  Nope!  Now that you have your cash in your envelopes, you will need to keep track of every. single. transaction.  I am not joking.  Doing this can help you stay on track and you also have to account for everything you spend.  So, when you spend $20.17 at the grocery store, make sure to deduct that from your total.  You can jot it down on the outside of the envelope, or keep a paper inside with the cash for you to use to track it.

If you prefer to do this method electronically, you can use Goodbudget (formerly called EEBA) on iTunes.  Instead of individual envelopes, you actually set up electronic ones instead.  Then, as you shop, you make a note in that envelope and have a new total to spend for that category.

When you have to make yourself accountable for your spending, you are taking control.  It also will help you spend less as if you only have $100 to spend on dining out over the next two weeks, you really think twice about ordering take out 3 days in a row as when the money is gone – you are done spending!!!

It isn’t completely about cash.  It is learning self control.  That is the one thing everyone will learn in going through this process.  Cash enforces this.

You will quickly learn to love using cash and  you will feel more in control of your finances.  We’ve been doing this for so long that I don’t know how to shop without my envelopes!   It is routine and it helps us always know, in a matter of minutes, how much money we have available for the things we need.

(I am not a financial advisor and the information listed within these posts is not to be construed a financial advice.   Financial concerns/issues should be addressed with a professional in order to receive advice and assistance.)


  1. Michelle says

    This is great advice. I do not have any credit cards. I use cash for everything and my debit for my rent, electric & cell. I, too, use coupons both hard copies/printable ones and write down lists of what I need. I also use the envelope system but not as detailed as the one listed above. Will be doing some things in my system different as I like the breakdown of the money for each individual need. Thanks for GREAT ADVICE! Will continue to follow. Happy Saturday 😉

  2. Cristee Hodgson says

    I am wondering what you suggest to so or households that pay days fluctuate? Right now my husband and I are getting pd. every other week, meaning, he is pd. this week, I am next week, but as the months roll by it will change and we will end up getting pd on the same week. To me it is so hard to get settled in our pay cycles because they always shift. Any thoughts?

    • Tracie says

      You may have to do a weekly envelope / budget in that situation. That way, you always revisit each week’s bills when they are do and can determine how much you spend on each category each week.

      Look at the past 3 months’ worth of expenses/income to get a pretty close average, knowing it could fluctuate slightly when the final paycheck arrives.

      I hope this helps!!!