Money Envelopes–Make Budgeting work for you!

money envelope with cash tracker and pen

Money Envelope System

What is the Money Envelope System?

The money envelope system for budgeting is an awesome trick you can utilize to help you stay on budget. Instead of relying on a credit or debit card, you use actual money (cash) to pay for variable expenses.

This budgeting method really helps you to stay on budget in categories where you routinely overspend. It forces you to see, and track, how much money you spend in certain categories. So if you want to really get a handle on your finances, and get better at staying in your budget every month, you should give the money envelope system a try!

How does the money envelope system work?

The main idea of the money envelope system is that you have a money envelope for each budget category you want to use cash for. 

Figure out how much to budget for that category, then add cash to the envelopes. When you go shopping, spend money from the envelopes. You can track how much you are spending from each category and know when your budget is spent.

The money envelope system can sound complicated, but is actually pretty easy to do. And, honestly, if you set up the system and stick to it, this budgeting system can make a world of difference in your budget and finances overall.

How to start the money envelopes system for your budget

If you want to start using money envelopes in your budget, you first need to get your budget set up. If you haven’t already created a budget, here are some useful resources to help you get started.

Guide to budgeting for Beginners
100+ Family Budget Categories
List of Monthly Household Expenses
Family Budget Example
Budgeting with Bi-Weekly Paychecks

Are you ready to get control of your budget?

Start your family budget easily, the right way! This free printable budget planner will help you get started!

Next you need to decide which budget categories you want to start using cash for. You want to choose categories that you struggle to stay in budget with, or ones where you want to try and lower how much you spend in that category.

Some category ideas for using money envelopes might be:

  • Grocery
  • Restaurants   
  • Gas
  • Beauty
  • Free Spend
  • Misc

For more ideas about possible categories, check out this post: Categories for a Cash Envelope System

You want to choose categories for your envelopes where it makes sense to use cash to pay for things. We don’t use cash for our utility bills because using cash won’t help me spend less on my utilities, and because I have them auto paid from my bank. But using cash for grocery shopping helps me limit my spending in the grocery store.

Tip: When you are just starting out with money envelopes, don’t go overboard. You will get overwhelmed and frustrated. Start with just a couple of categories of money envelopes until you get the hang of using money envelopes for your budget.

So now that you know which categories you plan to start using the money envelopes for, you need to figure out how much money to put in the actual envelopes.

This means that you need to go back to your budget and look at how much you have allotted for each budget category. Below is an example some categories you could use money envelpes for, and the monthly budget amount for each category.

Monthly Budget

Groceries – $500

Gas – $200

Misc – $200

Fun – $100

Clothing – $50

The next step is to decide how much money to put in your envelopes for each paycheck. In our example, let’s say you get paid two times per month. This means that you need to divide the monthly budget money for your envelopes between your two paychecks. So the money for your envelopes, for each paycheck, would look like this:

Monthly Budget divided for two paychecks per month

Groceries – $250

Gas – $100

Misc – $100

Fun – $50

Clothing – $25

Splitting your money envelopes amounts between your paychecks helps you not be stressed with putting the full monthly amount in the envelope at once, AND you can work on tracking the money in smaller increments.

So figure out how much you want to put into the category for the month, and divide that amount by the number of paychecks.

The next step is to figure out the denominations of money you want to use. Start by figuring how many of the bigger bills you want to use, and then work your way down. Once you have this figured out, you can take your plan to the bank to pull out the money.

Keeping with our example from above, here is how you might request the different amounts for your envelopes:

Groceries – $250 (3 $50 Bills, 5 $20 Bills)

Gas – $100 (5 $20 Bills)

Misc – $100 (1 $50 Bill, 2 $20 Bills, 1 $10 Bill)

Fun – $50 (2 $20 Bills, 1 $10 Bills)

Clothing – $25 (1 $20 Bill, 1 $5 Bill)

The last step is to stuff your money envelopes with the cash you pulled out. Take one envelope at a time, count out the bills for that category, add the money to the envelope and track how much you added on the envelope tracker.

Yay! You have officially set up your new money envelope system. Now you are ready to use the cash in your spending. Don’t forget to track how much you spend from each envelope, so that you know how much you have left.

money envelope with cash tracker and pen

Why Use Money Envelopes for Budgeting?

Let’s be real for a second. Setting a budget, pulling out cash, stuffing envelopes and taking those envelopes to the store can sound like a big pain. So why do it?

Because using Money Envelopes for budgeting can have an amazing impact on your budgeting efforts.

It is visual. Believe it or not, it is harder to spend actual cash than it is to swipe card. When you have to hand over actual money, you are more hesitant to do so because you can see the money actually leaving you. But it also let’s you see how much you are actually spending in your budget.

When using money envelopes, you have to track what you spend so you know when you are getting low in a budget category.

Makes Your budget more real. Putting numbers down on a piece of paper is great and all. But if those numbers don’t actually mean anything to you, then they won’t have the impact you need them to.

But when you are faced with a limited amount of money to spend, for real, then those numbers actually have an impact. You can’t just swipe a credit card and worry about it later. You have the face reality now. If you overspend in the moment, then you will have less to last you later in the month.

Free Money Envelopes for budgeting

Want to get started using the money envelope system, but don’t have any envelopes yet? You CAN use regular mailing envelopes, but why not use some that are more fun!

I have created a set of 5 envelopes just for you to help you get started. You can print these out on printer paper, but I do recommend printing them on thicker paper so they can last longer. These envelopes also come with a built in ledger to make tracking easier for how much you add, and spend, in the category.

Click here to get your own set of free money envelopes.

Printable Money Envelopes for budgeting

Note: some links in this post contain affiliate links, which means I receive a commission if you make a purchase, at no cost to you. Click here for our full disclosure

There are lots of great options for money envelopes to help your budget. Here are some of my favorite printable money envelopes for budgeting you might want to consider. 

Mermaid Themed Envelopes

These money envelopes add a fun flair to your envelope system.

Marble Printable Money Envelopes
This set is great for a classy look to your envelopes.

Floral Money Envelopes

These envelopes are so pretty! And you get a bunch for a great price!

Other Great Money Envelope Sets for Budgeting

Want some money envelopes that are a little more durable? Check out these great sets of money envelopes.

Customized Complete Envelope Set.

This set comes with 5 money envelopes, which you can customize to have your own words on. Plus it comes with envelope trackers and a fun pen!

Complete Money Envelope System plus Binder!
This money envelope set has all the goodies of the one above, but it also comes with a binder to carry everything in.

Does the Money Envelopes System Really work?

One question that gets asked a lot is if the money envelope system for budgeting actually works. And, it is a valid question. Using cash to pay for things seems antiquated in these days of “swipe and go”.

In short, the answer is that, yes, if you follow the rules of using money envelopes, and stick to the budget in the envelope, using money envelopes does work.

But, like so many other things, it only works if you do the work. If you don’t spend the cash from the envelope, and resort to credit cards, it obviously won’t work. If you constantly run out of money in one envelope and “borrow” from another envelope, it won’t work either.

The point of this budgeting system is to help you get better control of your spending. You have to be deliberate with your spending. If you go to the cash register and you only have $24 dollars left in your “clothing” budget, and the clothing you want to buy costs $30—well then something has to get put back or you need to wait to buy it until your envelope is refilled.

When you stick to the rules, stick to the budget of your money envelope, and practice self discipline, then the money envelope system will work wonders for your finances!

Final Thoughts on the Money Envelopes System for Budgeting

Personally, I love the money envelope system. I have found that when using cash in my budget, my budget works better. I am more aware of the money being spent and how our budget is going throughout the month.

Using money envelopes can feel like an extra step (or a few steps), but it really does work if you are struggling to stay in budget each month.

Do you use the money envelope system? How do you like it? Let me know in the comments!

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