Everything you need to use the cash envelope system to organize and stick to your budget and put a stop to overspending.
With the cash envelope system, you use cash and envelopes to organize and stick to your budget. You create an envelope for each budget category and place the money allocated to that category in the envelope. When you use cash, you cannot spend more than you have budgeted. Read on to see how the cash system works and to print our free customized cash envelopes.
How to get started with the cash envelope system
The envelope budgeting system is a great way to prevent overspending. For example, if you take your groceries envelope with you when you go grocery shopping and leave your credit card at home, you will not be able to spend more than the amount of cash in your envelope. This will prevent impulse purchases or spending more than you have budgeted for groceries.
Our cash envelope planner includes a worksheet with the reasons you want to improve your financial situation. Read this when you are frustrated and forget why you are doing this. There is also a goal sheet with the things you are going to do to cut back on. Add anything you personally can do to cut back on your expenses.
If you don’t want to use actual cash envelopes you can use apps that digitalize the cash envelope system (see below).
Step 1: Set a Budget
1. Determine your Income
List all sources of income and calculate your total income. Make sure that this income is after taxes (i.e. the amount you can actually spend or save).
2. List your Expenses
Before you start, you have to set a budget. Our budget templates will come in handy for this step. Go back six months and check how much you spent each month. Go through every transaction in your bank account, your checkbook, and your credit card statements.
Our budget sheet template printables include some standard categories for home expenses. If you would like to use different categories then choose a Word or Excel template and edit the category names. Record every expense in the relevant category. If you are checking your expenses from January to June but have many expenses in December for Christmas gifts, then add those too. Add in any expenses that you know you have throughout the year that were not included in your budget.
Once you have your total budget, compare it to your earnings. Can you afford to spend what you are spending? Can you cut costs? Do you have money left to save? If you are not sure how much you should be saving then see our savings tracker and templates.
Make a note of bills that are easier to pay by a bank transfer or a credit card than by cash. Each month you will leave this sum in the bank to take care of those bills. For example, utilities, housing, insurance, and loan payments will probably be paid electronically or with a credit or debit card. These expenses are often fixed and will therefore not be included in the cash envelope method. Our free printable cash envelope system template has a section to record these bills.
3. Set a Savings Goal
By now, you should know how much money you have each month and how much you spend. Assuming your income is higher than your expenses, the difference will be your savings goal. If you feel like you can cut back on expenses then increase your savings goal and reduce your expenses to a reasonable amount that you can commit to.
If your income doesn’t cover your expenses, you will have to set new expense goals and work out where you can save. If you eat out a lot, you can start cooking. If you spend too much on a gym membership you might need to cancel it. Do whatever you need to in order to ensure your expenses will be lower than your income. Be ruthless if you need to be. You cannot spend more than you have. See the worksheet on ways to cut back.
At the end of the period, go back and write your actual savings. If you stuck to the system, it should be equal to or higher than your savings goal.
Step 2: Select Categories
We have two budget worksheets you can print. One has six categories and one has eight. If either of them works for you then use them. If not, then use the Word version or Excel version and change the categories.
Step 3: Set a Budget for Each Category
If you are paid weekly then you will put cash in each envelope each week. If you are paid monthly then can put cash in each envelope each month or you can put a quarter of the amount in each envelope each week. This will ensure you have only the amount available for one week at a time. You don’t want to deplete your budget in the first week of each month.
Write a budget for each spending category. We suggest you print the weekly budget template 4 times for each week of the month. Make a note of the bills that will need to be paid each week. How much each bill will be and when it will need to be paid?
Create a schedule of the bills you pay each week or month. See our bill payment template. Print a bill tracker template and check off the paid bills to ensure that none go unpaid. If you are on a tight budget and don’t want to print a new sheet each month then insert it into a plastic cover and mark the paid bills with a marker. You can wipe it and reuse it as often as you want.
Step 4: Get envelopes and Prepare Them
Prepare the envelopes and write the category name on each one.
If you have envelopes you can use ready-made ones. If you want to save time and money you can use old envelopes from old bills or letters. If you are into DIY and love pretty envelopes, then use our cash envelope templates to create envelopes with each category on them and a budget on or in the envelope. Some people find it easier to stick to the system when they have pretty envelopes that motivate them. Our free printable envelope templates have motivational quotes on them to keep you inspired and motivated.
Make an extra envelope for an emergency fund. Try to put as much as you can in this envelope each month. Ideally, you want to save 3 to 6 months of living expenses to have in your emergency fund. Don’t keep this envelope with cash in it if you will become tempted to use it. Put it in the bank in a savings account as soon as you save enough to deposit. Keep adding to the savings account until you save enough for your emergency fund.
If you have big expenses once a year such as a family vacation or Christmas gifts then make an envelope for this and put money in it each month. Deposit it in a savings account until you need it if you will be tempted to use it.
Step 5: Put Cash in the Envelopes
Work out how much money goes into each cash envelope and write it down. You can write it both on the spreadsheet and on each envelope.
When payday comes, if you are not paid in cash then go to the bank and withdraw cash according to the denominations you need (see the spreadsheet below). Before you go, figure out how many dollar bills you will need for each envelope and write it down. This way, when you go to the bank to get the cash, you will know exactly how many bills to ask for.
Distribute the cash into the envelopes, according to how much you allocated for each envelope.
Play by the rules. Use only cash for expenses that are supposed to come from your cash envelopes. Don’t use your credit card.
Step 6: Reevaluate Your Expenses and Savings Periodically
After the first period (week or month) evaluate your system. Did you have enough in each envelope? Do you need to make any adjustments? Did you over budget or under budget in any category? Go back to your budget sheet and make adjustments accordingly. Keep doing this and fine-tuning your budget until you are sure that your budget is accurate. This might even take a few months to do. You will get it right eventually.
Add envelopes if you need to. You might suddenly need to repair something, give a gift, or make a payment that does not fit into any of the other envelopes. Even if an expense fits into a specific category you might prefer to make a dedicated envelope for it even if it is a one-time expense. Make your system work for you!
Tip: If you need the motivation to stick to this system then fill out the motivation template “Why I want to save” to motivate you. Read it when things get hard.
Cash Envelope Template
You can use blank envelopes with labels or just write the category name on the envelope. However, our free templates include important information on the back of the envelope that will help you with cash envelope budgeting.
How to Make Cash Envelopes
- Select a ready-made template if you like either of the designs below or use the cash envelope maker to create your own DIY cash envelopes with any of 60 different backgrounds.
- Select the background.
- Edit the text.
- Cut around the template.
- Fold on the fold lines.
- Adhere the sides.
Background cannot be changed
8 Different Categories + 2 Blank Envelopes for Any Category
60 Different Backgrounds
With our free online cash envelope maker, you can edit all text and change the background. There are 60 different backgrounds available.
You can print the blank template on colored paper to save ink.
Benefits of the Cash Envelope System
- The cash envelope system enables you to easily see how much money you have left in each spending category. When you don’t use cash, it is more difficult to be on top of your personal spending. By the time you realize you have spent more than your budget it’s too late.
- When you use cash, you become more aware of your spending habits. It is easier to charge a credit card than to take out cash.
- The envelope cash system prevents you from spending more than you have which saves overdraft fees.
Even if you don’t think the cash system is for you, try it for 30 days. It will help you become more aware of your spending habits.
Can you borrow from an envelope? Don’t make this a habit but sometimes it might be worthwhile. For example, if there is a sale on something that you know you would have bought at a later stage and you can buy it cheaper now. If you have extra money in one envelope, you can borrow and replace it when you can. If you have an opportunity to save on one expense and postpone another, then it makes sense financially. Just make sure you don’t do this to buy things that were not on your original budget because then you basically defeat the purpose and the cash envelope system will not work for you. Be honest with yourself. You are doing this for yourself.
Shop around and check prices online. One of the easiest ways to save is to buy the same products at a cheaper price. There are always price differences between stores and finding the cheapest store is a great way to save. If something is on sale and you know you will buy it at a later stage for more, then stock up. Freeze it if you need to. Just make sure you are not tempted to buy things you wouldn’t usually buy and are not part of your budget.
When you go shopping always go with a list. When you buy with cash, you will need to know how much things will be to ensure you have enough. That’s the point of the cash envelope system. Gone are the days when you buy what you want and charge your credit card. See our shopping list template with prices. You might want to use an Excel version and work out how much it will cost before. You can also use any other version and calculate the total yourself.
If you want to save some of your cash then why not try the 100 envelope challenge?
Cash Envelope Wallet
This cash envelope system is so popular that you can buy cash envelope wallets with sections or envelopes for each spending category. The concept is great, but they are often quite expensive and I don’t believe you should have to spend money to save money.
If you have tried the system for a while and you know it works for you, then go ahead and purchase a cash envelope wallet. On the other hand, if you are only just trying the system out or plan to use it for a limited time, then put the envelopes in your handbag, purse, or in a big wallet and save the money you would have spent on the new wallet.
How to create a wallet with an envelope system
You can create a DIY envelope cash wallet by taking a large wallet you already have and inserting small envelopes into it (see our free envelope templates above).
You can also put your cash in your wallet and separate the categories with a paper pin and attach a note with each category’s name.
If your wallet is too small, then put the envelopes in your purse or keep them at home when not in use and save your wallet for the one spending category you use most. Since you will most probably not spend from all categories on the same day, you can also remove cash from your wallet and insert the category you will use that day. For example, when you go grocery shopping, you will only put the cash from your grocery category in your wallet. This cash envelope wallet system has an added advantage. If you lose your wallet or if it is stolen, you will only lose the cash from one category and not your entire weekly or monthly budget.
Apps that Digitalize the Cash Envelope System
If cash envelope budgeting sounds interesting but you don’t want to deal with cash or envelopes then you might want to try one of the digital apps.
The Goodbudget app is a digital budget tracker. It uses the envelope budgeting method without the actual envelopes. You can sync your budget with your spouse or family members.
With Mvelopes you create a budget and spending plan and you control it with the app. The idea is to set up money in advance for each category and limit your spending to that amount. When your money starts running out you can either stop buying things from that category, buy cheaper products or move money from another category. You link up to your bank and credit card accounts to keep your budget up to date. The goal is to get to the end of the month without emptying your envelope for each category.