envelope

Keep your spending tidy with an envelope system

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by Tsh

Tsh is the founder of this blog and is currently traveling around the world with her husband and 3 kids. Her latest book is Notes From a Blue Bike, and believes a passport is one of the world's greatest textbooks.

We use cash for most of our day-to-day purchases.  A lot of this has to do with where we’re currently living – not as much is online, and not many mom-n-pop stores here take plastic – but even stateside, we rely a lot more on cash than on plastic.  I’m not here to debate the security issues of using a debit card versus cold hard cash (maybe I’ll dip a toe in that water one day), but overall, I can positively say that using old-fashioned cash with the tried-and-true envelope system for everyday purchases works well for us.

The Benefits of Cash

• You can’t spend money you don’t have. Many bank accounts provide overdraft protection, so even with a debit card, it’s easier to go over your account balance than you think.

• You’re more aware of what you’re spendingif you’re using an envelope system, that is.  Yes, it’s unbelievably easy to let cash slip through your fingers when you’re not paying attention to it.  It can be slightly easier to keep track of purchases with a bank statement.  But if you’re willing to keep a daily record of what you’re spending, it’s not hard to keep track of cash at all – and you save money in the process.

• It hurts more to spend cash, so you don’t spend as much. I’ve heard Dave Ramsey say this before, and I think it’s true – it’s a bit numbing to swipe your card at the store.  But it’s more painful to pull out a wad of 20-dollar bills to pay for those jeans.  You’re more likely to think through your purchases, and therefore, not spend money where you just don’t need to.

An Envelope System, Simplified

Here’s how we create our envelope system.

(Note: my husband receives his salary just once monthly, so we have a pretty cut-and-dry monthly budget.  If you get paid every two weeks, it would probably be easier to create a workable system where you fill and spend envelopes according to your paycheck.  In other words, work with your cash flow, not with a system that you think you should have.)

1.  About a week before the new month, we create our next month’s budget (we use Pear Budget).

2.  When our salary hits our account (and we can predict down to the hour when the money will appear), we act immediately.  Basically, on payday, one of my household management tasks is our bank accounts.

3.  I look at our monthly budget, and total how many of those categories we’ll spend in cash.  That’s how much money we need to withdraw from our bank.

4.  I leave a couple hundred in the account to serve as padding for bank and bill mistakes (and for us, we also need padding for fluctuating exchange rates).  I also make sure to leave enough money for our online bills and expenses.  But then, I go ahead and withdraw enough cash to fill our envelopes, right then and there.

We fill our envelopes with the cash needed for each of these categories (which we figured out when we did our monthly budget).  When the cash runs out, that’s it for that category.

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Photo by velo_city

Keeping Track of it All

Let’s say I need to hit up the grocery store for my regular weekly trip.  I take a generous amount of cash from the grocery envelope (though not all of it), put it in my wallet, and head to the store.  If I’m not replenishing an enormous amount of groceries, I keep a general till in my head as I shop; otherwise, I pencil in a rough amount on my grocery list.  I usually round up, to be safe.  The reason I don’t put the exact amount down to the cent is because I’m rather an idiot at math – I keep it simple so that I can total it up in my head.

Because I’ve kept track of my grocery selections, I’m confident of my estimated total as I head to the register.  I pay in cash, and I immediately label the receipt “groceries” before putting it in my wallet.

When I get home, I empty my receipts and put them in our designated spot near the front door. As I mentioned in my ebook, we have a landing spot for things like keys, sunglasses, and shoes by the front door.  Well, we also have a receipt dump.

Once a week, I take all our receipts, which are (hopefully) all labeled with our expense categories.  I then enter them in to our Pear Budget account, complete with appropriate tags to keep track of our categories.  And of course, I also enter our online expenses and income, too.

Spending Money

You might remember when I described how we create our zero-based budget that we specifically have categories designated as free spending money.  It’s not much, but both my husband and I each get a set amount each month to spend on whatever – coffee is usually my purchase of choice.  We put this money directly in our wallets, and we make sure to keep that separate when we have money from another envelope. When our spending money is gone, it’s gone until the next month.

A Few Answers to Predictable Questions

Q: Are they real envelopes?

Pretty much.  They’re plastic zippered pencil pouches, and we keep all of them together in a basket on our desk.  They’re labeled with each of our categories:

  • groceries – this includes anything we’d get at the grocery store, such as toiletries
  • household – this is different from one month to the next, but it includes things like a new bath mat, or a printer cartridge, perhaps
  • public transportation – metro, bus, and taxi fares (it’d be the equivalent of gas for those of you with cars)
  • dining out & family fun – restaurants, movie rentals, perhaps a fun treat for the kids, like a trip to the zoo

wallet.jpg
Photo by no feeling

Q: Do you carry around a ton of cash?

No.  We leave our cash at home, and take it with us when we’re purposely going out to spend the money.  Yes, there are times when we’re out that we need to make an unexpected purchase – but it’s not often.  An envelope system curbs our impulse purchasing power, which is one of the real benefits.  But when it does happen, we either use cash from another category, then adjust accordingly when we get home; or we use our debit card, and label the receipt with that category name immediately before putting it into our wallet.

Q:  What about unexpected things?

Real life happens, of course, and there might be times when we need more grocery or transportation money than we thought.  In that case, we juggle money around from the other envelopes.  It’s good to stay flexible, but the money has to come from somewhere.  As much as I’d like it, my superpower is not making money magically appear, and our family doesn’t use credit cards.  It’s only logical that if we need more grocery cash, then we either need to make more money, or take it from another category.

Q:  What if you spend money on more than one category at the same store?

I don’t split hairs over it – I just spend cash for one purchase, then make a note on the receipt of what was from a different category.  For instance, if I bought household supplies at Target, and while I was there I bought a DVD for our family, I simply tick the DVD on the receipt as “family fun,” and enter that separately on our budget record.  I’m hoping that Pear Budget will soon be able to split receipts into multiple categories, like the painfully overloaded Quicken.

I know that in this digital age, spending cash is almost considered a faux pas.  That’s okay with me, though – we spend less money when we do, and that’s more important.  We’ve never lost the money, and since the envelopes are only for a few spending categories, it’s not as much money around our house as you might think.

Thanks to Capital One 360‘s incredible ability to create umpteen jillion accounts for free, we pretty much use the envelope system for our online purchases as well.  The system is called sinking funds, and we have individual online savings accounts, all with ING, labeled things like Christmas, clothing, and giving.  As we spend money online from our checking account, we simply transfer the exact funds from the appropriate savings account.  It’s beautifully simple, really.

Do you use cash for anything anymore?  If so, do you use an envelope system to keep track of it?  What’s worked for you? I’d love to hear.

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Comments

  1. We have a cash system as well! It really works for us. I think it really guards against “miscellaneous” expenditures, because you have a budget for everything. For instance, if my son needs socks, I don’t just swipe the debit card and get them. It comes out of the clothing budget for the month. If my daughter needs some kind of craft supply for a homeschool activity, this comes out of the education budget, etc., etc. And what you said is true, you DO spend less when you can open an envelope and look at it and know exactly what you have to spend. It also makes you want to spend it less because you know it has to last ALL month! It’s a great system and we are not going back any time soon.

    Laine Chambers’s last blog post…Slippin’ and a Slidin’!

  2. We have been trying to stick to a zero balance budget and envelope system but honestly have struggled to keep up with it. I am not giving up though! October is a new month to start again. It is so difficult to break old money habits!

    Stephanie’s last blog post…Love This Movie!

  3. I can attest to the fact that using a credit/debit card for everyday purchases is dangerous. Like funny money almost!

    Half Assed Kitchen’s last blog post…Squash soup for dummies

  4. This post is so helpful – thanks for spelling it all out!

    Emma’s last blog post…Four minutes.

  5. We don’t use much cash. I’ve found I spend more frivolously with it. But we track and budget with the envelope system via software made for that type of system. I adore the envelope system! (It’s the only way I can stay at home with my kiddos.)

    Avlor’s last blog post…“Lightscoop” wanna be (for now)…

  6. I just can’t get behind the cash envelope system, and I have tried! I use an excel based budget instead, and I’m pretty good at sticking to the categories too. We have started withdrawing cash at the beginning of the month for certain things: what we have to pay in cash (the reading teacher) or luxuries (Sunday pizza). I like your idea of having an envelope for household stuff- I might do that for anything for the house that I can’t get at the grocery store (as it stands, things like lightbulbs, batteries etc come out of the grocery budget.).

    Kelly from Almost Frugal’s last blog post…Carnivals, Festivals and Linklove

  7. I used the envelope system to get out of debt and then again to build up my first savings account over $1000. I was so proud. The system works very well for my spending/saving style. I still use mostly cash but we don’t have the envelope system anymore and have a bit more flexibility in our budget. You did a great job laying out how it all works. I recommend it whenever a friend asks how to start getting out of debt.

    Emily’s last blog post…Some Things About Things

  8. We are firm believers in the envelope system – especially for “problem categories” – for us, that’s eating out! We have been rather lax in recent months on how much we’ve spent eating out, and last month decided enough was enough. I had gotten behind on updating our budget, so we got that caught up and were apalled to see the real numbers of $$ spent eating out. We picked what felt to be a very “reasonable” amount of eating out, and withdrew that cash at the beginning of Sept – it’s been a busy month, but amazingly, we’ve not come close to using all the eating out money and neither of us have felt deprived. Instead, we’ve eaten out as a plan instead of realizing it’s time for dinner and our only choice. Looking into an envelope at how much cash is left definitely causes you to think and constantly evaluate your values, plans & intentions – I highly recommend it!

    jodi’s last blog post…Mama, Papa & Elmo

  9. I’m a firm believer in the envelope system. It’s also great for teaching kids about money. My three year old completely ‘gets’ money and understands when there isn’t any left, on the other hand my friend’s 13 year old when told there isn’t enough money for something will say ‘just write a cheque then’. It’s sad to say that’s a child destined for debt.

    Leanne’s last blog post…Sparkes and Midnight Zoo Heist

  10. We are changing over to this system. I take out what we budgeted for groceries in cash and thats all I get for the week. But the thing I’ve noticed is I have to take my debit card out of my wallet. It is amazing how easy it is to go a little over if I know I have it with me. But if all I have is cash I have to be really careful. And I don’t want to be the one at the checkout counter who bought to much and is trying to figure out what to put back. It has made me very aware of what I buy. Great post.

    Stephanie’s last blog post…Looking Back to Look Ahead

  11. I love the envelope system. You are right about it being harder to spend cash than swipe a card. It really makes you think if you really need the item when you plunk down a bunch of 20’s and get a few coins back.

  12. I’ve been using a debit card for many many years. We balance our check book every morning.
    I have tried the cash thing – doesn’t work for me. I’m too sneaky. For example – if I did great grocery shopping and saved money I will just spend that cash as the craft store! Since I use a debit card – when I save money at the grocery store I can’t spend it at the craft store – hubby will see it online!

    Do what works best for you … just don’t use credit!

    Dana’s last blog post…Great Posts of the Week

  13. We tried it several years ago and I’m thinking of trying again. I’m only concerned with keeping track of cash from several categories if I’m running more than one errand, but you make it seem not too complicated. Also, re: pear budget, if I buy from several categories at Target, say, I just manually split the receipt up myself and have an entry for each category and then just tag it “split.” Then when I look at my receipts and see several entries dated the same, all from Target, with the tag “split,” I know that they were all from the same trip, and this way my budgeted categories stay better-accounted for.

    Gidget’s last blog post…Weekly Surf Spots

  14. I struggle with this; we use our credit card for just about everything, b/c we are accumulating miles for our annual summer family visit. We end up saving significantly on airfare.

    But . . . I do believe that plastic makes buying too easy and discourages budgeting. I’m trying to find a way to make it all work; this month I’m simply recording my grocery expenditures, just to get an idea of how much we spend (I know it’s a staggering amount).

    I would love to hear from others who budget successfully and use a credit card for most expenses.

    Vintage Mommy’s last blog post…Happy Birthday Vintage Girl!

    • We just recently gave up the credit-card-all-the-time gig (we paid it off every month). Over the last few years, we’ve redeemed a few free trips with airmiles and have one more we’re saving for a little later. But just like you said, I believe we ended up spending more because we didn’t have to fork over cold hard cash. Swiping the CC had become too easy for us. Our monthly statements had significantly grown in the last few years and it was time to call it quits.

      Gidget’s last blog post…Weekly Surf Spots

    • We too, used to do the buy it all with the credit card thing…one thing we realized was we would often allow ourselves one “splurge” a month, but bc it was on the CC, we’d totally forget that splurge and splurge again later in the month…then when the statement came, the balance would be more than expected all because of us over-splurging – yikes! We always were okay to pay it off, it just always seemed to catch us by surprise. Most disappointingly, by the time the bill came, the splurge rarely seemed to have been worth it, but rather more of an impulse buy that we no longer even remembered. Now that was a bummer!

      We finally switched over to using a debit card for most everything (except a few cash envelopes) and were amazed at what a change that simple switch did for our money. Knowing that the $$ came out of the bank account “right this minute” made us think much harder about what we were spending and cut down significantly on the money spent on useless stuff.

      jodi’s last blog post…Mama, Papa & Elmo

    • My husband and I use a credit card almost exclusively for the cash back awards. (We each get a monthly amount that we can spend however we want- mine’s usually for fast food lunches). However, I keep a log book where all the receipts go, and I total as we go- I know EXACTLY how much the bill will be, and we ALWAYS pay off in full. I do have a couple of categories that could easily get out of control for me. For these, I write my budgeted amount on an index card that I keep in my wallet. Every time I spend from that category, I subtract it on the card, so I know when I am approaching my limit. This helps me keep those difficult areas under control.

      • We do something very much like that, Lynette. We use the credit card because of the major points we get towards groceries, as well as for the built-in warranty/insurance on some things. But we write everything down, with the subtracted category, and add things up very carefully to match our budget. We pay it off in full online every paycheck, so twice monthly. I also keep a running tally of categories in a ‘notebook’ on my phone, so I know exactly how much available money is left in each category.

    • I use the credit card & seem to stay “on budget” most of the time. The easiest way to do this is to use a separate check ledger & write in everytime you use the credit card & what it was for. My food/household budget if $500 a month & towards the end of the month, it is mostly depleted so it’s time to use up what’s left in the house for the remainder of the month.

      Last month, most of the household detergent got used up so this month it’s time to “restock” that item (w/sale items of course).

      Tracking the credit card purchases is a lot like the envelope system but w/o the cash. Using credit cards is tempting for many & can easily get people into trouble. But I raised 3 children as a single parent & have used credit cards successfully, paying only a few months of interest certain times of the year (like when buying all their school wardrobes).

      I agree that for those who cannot stay within budget w/a credit card need to go to the cash system.

  15. I do like to keep track of what I’m spending while I’m at the supermarket, too. Actually, when we go grocery shopping, my boyfriend and I do little “competitions” where we try to guess the total amount. The one who makes the closest bet is free from putting away all the groceries at home.

  16. What do you do when your husband will not get on board with any spending plan/budget?

    • Dave Ramsey’s standard answer for that question is “What do you when your spouse won’t do XYZ that you want them to?”

      We followed Dave’s plan a few years back to get out of debt and it has made a tremendous difference in our lives – my husband got interested first, and I was by far the resistant one. Dave has a daily radio show from 2-5 EST, and my husband encouraged me to start listening to it. When I heard other people who had gotten their lives under control by using a budget it got my attention. I’m a very common-sense oriented person, and I just couldn’t get over how much sense Dave made. In no time at all, I was hooked. Dave Ramsey has surely been a huge blessing in our lives and one of the reasons I’m so passionate about telling other people what a difference budgeting can make in their own life! The freedom a budget brings is just incredible!

      jodi’s last blog post…Mama, Papa & Elmo

      • I second Jodi’s response, Rachael. Dave Ramsey addresses callers with your very question, and he also says it’s important not to harp on your spouse. We all know how effective nagging another person is. ;)

        Also, you can pray for them.

        I’d love to hear others’ words of wisdom on this.

    • Rachel,
      I had that problem with my husband. For years I asked to go to the cash system. Finally, in desperation, I asked, “Please, can’t we at least try it for a few months?” He agreed then, but he was certain we wouldn’t do it for more than a few weeks. Well, that was 12 years ago. He got hooked on it in probably two weeks because he saw how much money was left in our bank account after paying the bills.

      A.D.’s last blog post…September Freebies

  17. We used the envelope system for over a year, and then switched back to debit cards for the last couple of years. Since our family’s latest arrival, I’ve noticed the spending getting a little crazy again, so we’re headed back to the enveloped next month! :0)

    Charity’s last blog post…Hoodie

  18. I found an awesome online program about five years back called Mvelopes.com. It’s an online version of the old “envelope” system and it automatically captures your credit card transactions. Some of you may be worried about security, but I’ve had a great experience with it. I also use my cc to accumulate miles and have taken several vacations on my frequent flier miles. The system doesn’t help those who can only curb spending by using cash, but eliminates manually entering transactions and can run some cool reports! I love it (and I don’t work there or anything).

  19. That is so true, and so good! Thanks for sharing. We used to use an envelope system for awhile and it was good for us. We just got busy and let things get in the way of organizing, and have stopped all together. This really encourages me to get back to it. I may try and start again this week!

    Tabitha’s last blog post…days of fall:: 7

  20. Yes Sir EEE! I have been using this system for 27 years. I have a wallet that holds my calendar and persoal data all in one. So I bought 6 colored pockets which fit my system, (ie the 6 holes line up perfectly): laminated them, labled them my 6 most used $ categories. Grocery, gas, school, laundry, Doctor, Petty cash (which is for stamps, film, cards, etc) Then fill the pockets each month when we get paid. The envelopes which only get used once or twice a month stay at home. Once again as the cash runs out, you don’t spend from that enevalope until the next pay day. We have figured that we spend 15-20% less with cash. It also reminds you that you can make a pizza for 5 dollars at home, rather than going to a resturant and spending 25-30. Our children have caught on also. At 3 they get pennies for chores, which go into 3 boxes; tithe, save, spend. At 10 they take over the managment of their own clothing budget. At 12 they get an entertainmetn budget, plus add their babysitting $ or yard $ to their own budget. At 16 they take over all of their personal expenses. (which I have been calculating for a year or so…sampoo and personal hygene items, clothing, life insurance premiums, gas/oil for their share of the car…you get the picture. At 18 as they head off to college the idea of self control and discipline of money is not so overwhelming. I have shared these ideas over the years to groups of women and some will catch me later with the benifits of this system. Keep preaching the good news!
    Scotty

  21. WE do the envelope system since two years ago. We divided as: groceries, gas, Haircuts, carwash (we can’t wash our cars were we live :( ), and allowance. We have a fixed budget (that we need to change now that things have changed) and we assign a fixed ammount for each categories. For example, in groceries we have $280/month and we divide it in 4 weeks making it $70/week. If in a specific week we need more, we borrow from the other week, but we know that next week we need to be more tight. Gas is $60/week; we have just one car. Our allowance can be spent how ever we want during that month that does not include our budgeted items. We also have automatic payments of our bills and set some $ for savings as if we were paying a bill (is our trick and it works like a charm, because we just don’t think of that money as money to spend).
    I don’t know if we got bored of it, but lately I’ve noticed that if we are doing groceries with our $70 and the bill was for $80 we charge it to our debit card. I think this is because we now have to extra money to spend (after savings) and we feel kind of free, but I think we need to work on it because we never know when is going to be compulsive and just don’t be concious of our spendings as we did before.. and actually that’s what I like about the envelope system.

  22. Great post on something we have talked about doing off and on!
    We also use a cc for all purchases except for Costco which we use a debit for. IF I keep up to date entering the amounts spent into our excel budget system, I don’t have too much trouble staying within budget. (splitting receipts is my least favorite part of this system!) Sometimes things get busy though and then spending can get out of control. Since I usually shop with all three of my kids and I am also a ‘math idiot’ I can not imagine keeping a running tally while shopping for groceries! Maybe soon though I could assign my oldest to use a calculator to keep track as we go…
    I’m considering using cash for household items and clothing since those categories are easy to overspend.
    I liked Scotty’s method of getting kids ready for their own money management! ;-)

  23. We used to do this, and should probably go back to it. We did use cash while we were on vacation and it was so nice to not come home to a surprising credit card bill.

  24. We’ve used the cash envelope system for several years, with varying degrees of success. We keep our cash in one single wallet-sized folder with dividers and I usually carry it with me. That becomes a problem when my husband needs cash for something and I’m not home, but it makes it easier when I need to pull from several categories in one store. We need to get a little more specific with our categories, I think. Thanks for the reminder!

  25. I am totaly convert to the envelope system. Two years ago when my husband lost his job I read Dave Ramsey’s book and tried the system. It made a huge difference for me. Even now (thankfully) that my husband is employed I have continued with the system and I KNOW that I spend a lot less money as a result. I have envelopes for food, household, kid’s lessons, and fun.

    I also learned that having “fun” money is very important. No matter what the amount, it’s important to have something each month that I can spend on whatever I want!

    Leigh Anne’s last blog post…Top Tips for Visiting Your Children at College

  26. Thanks for writing this.

    I haven’t used the envelope system yet, and we need to do something! My husband will be harder to convert. I think he just likes the quick availability of a card and doesn’t have more ‘things’ to keep track of? Who really knows. BUT, I will be implementing this on our next pay period and see if we can’t get back on track! (Maybe I’ll just have to take his card away).

    Thanks again!

  27. We use cash and LOVE it. We have a lot more categories- which makes it more complicated, but it works for us. We do not do a variable monthly budget- our budget stays the same from week to week. So, I know that after 3 months I can buy something I want for our house if it costs 3 months worth of what we put in. It makes me wait, price shop and make sure I really, really want it. I love Dave Ramsey’s advice about fun spending. Make a list of what you “want.” If something can stay at the top of that list for a month and you can afford it, buy it. It keeps us from spending money and then regretting it. Thanks for the post- wish more of us could use cash systems and benefit from the discipline it provides. It would have saved a lot of the failed marriages I know about.

    Erin’s last blog post…Share your grocery budget??

  28. Awesome job clarifying and simplifying this process.

    Great reminder to start it!! I’ve been wanting to start this … and have been talking of its praises… but have been lazy.

    Naomi in Ohio’s last blog post…Sign me up

  29. Thanks for the post, boost of motivation and above all, perfect timing for me and my family.

    The Confession: We have been so, so slack in the last few months (we are on a monthly salary too) and it’s dismal to think what we’ve spent all that money on that hasn’t been recorded or conveniently forgotten about.

    The Resolution: Starting tomorrow, with the new month, things will get back on track for us. With a little reorganisation, perseverance, self control, and using the cash/envelope system to get us up and running again we should be right again soon. Wish us luck!

    Thanks again for the inspiration and motivation you always seem to bring with every new post.

  30. Perhaps I’m misunderstanding the system. I’m reading a lot about groceries, pizza and the like, but what about your rent/mortgage, car payment, daycare? I can’t imagine putting $1200 in my mortgage envelope each month. If I were to do that, how would I use that cash to actually pay the bill? Get a money order?

    Rebecca’s last blog post…Why Kids Amaze Me

    • When I talk about handling cash, I’m only referring to those few categories we use cash for (see above in the post). We pay things like rent, bills, and various online purchases directly through our accounts, so we leave that in our bank. It’s still done via an envelope system of sorts, (more like sinking funds) through our various ING savings accounts.

      • In our house the cash items are: groceries, gasoline, family fun, clothing and personal care (includes toiletries and haircuts), household (this is the big variable category that might see printer ink, stamps, fertilizer, towels, crafts, etc), education (mostly music lessons, but includes a few fees too), and gifts. We converted the monthly total of these categories to a weekly amount so we don’t have as big a wad of cash. We withdraw that amount every week, the same day of the week. We don’t divide the money up further than that weekly amount. When it’s gone, it’s gone until the next Monday, but I always try to squeeze it out to have some left over every week. The leftovers go into a reserve wallet to save for a “biggie” purchase. Something exciting like a new bath ceiling fan!

        Our other bills are all paid directly from our checking account: tithe, savings, house, utilities, car repairs, auto fees. They are not part of our cash spending.

        A.D.’s last blog post…September Freebies

  31. I am using Pear Budget for a free trial and I was curious about this comment that you made: “I’m hoping that Pear Budget will soon be able to split receipts into multiple categories, like the painfully overloaded Quicken.” If you post your own receipts to PB, how can you not split receipts manually? Is there another way to do it? Also, you mentioned you only use your “real” envelopes for a few categories. With the exception of food, household and family fun are there any other envelopes that you use? I am starting an envelope system and wondered what real envelopes I could use. Oh, also transportation. Thanks, Maureen.

    • Oh yes, you absolutely can split receipts manually, and this is what I do. It’s not a big deal, really – it just takes a little math. And as I mentioned, I’m an idiot in that department. ;)

  32. We do almost the same system as you. We have cash envelopes for: groceries, going out, other, and then a “personal allowance” for each of us (a small amount to “blow” without getting mad that that other person is wasting our family money). We allow $75 for credit card spending for the online/other stuff. It usually works out very well. But our budget is very tight and the unexpected non-monthly expenses can hit us very hard.

    CC’s last blog post…I’d like to say that I can explain this

  33. Dear Simplemom,
    I have been using the envelope system for about 1 year. I did not know if it was the best way to deal with my money. Thanks for pointing out all the benefits to this system. With all the information I feel much more confident. I love your blog. You have helped me put a name and purpose to a way of life I was living but could not put all together until reading your blog. You inspire me everyday.
    Thank You simplemom from another simplemom,
    Beth
    p.s.I love your new picture.

    Beth’s last blog post…Creative Care Day 2

  34. For the five years that I was living in Japan I relied heavily on the cash envelope system. But recently, since returning, I have abondoned it for some unknown reason. Maybe it’s easier to do in a cash based society? Or in a country where the paper money is more durable than The States?

    Belle’s last blog post…Monk and Me… Marrying Soon

  35. We just started using PearBudget yesterday, and are going to start using the envelope system. I was appalled at how much we spent on eating out this month!!! Not only will the envelope system help our budget, but also our waist lines!!! We are very busy with work, church, youth ministry, grand kids, family, etc. and its so easy to get pizza or go through the drive through instead of planning meals ahead of time. But, I am going to work on that! I already informed my 16 year old daughter of the changes we are going to make and she too, was appalled at how much we spent eating out! Thanks for all the good advice in this post!

    mary lutz’s last blog post…Walk To Emmaus-Men’s Walk #34

  36. We do our envelopes through an online system called http://www.mvelopes.com It keeps all our envelope totals online and connects to our bank so we can use our debit card and it will immediately pull from our envelope balance. It keeps us on budget just like the cash envelope system, except we have the freedom to use our debit card and not have to worry about labeling and totaling every receipt. Its a great alternative to the cash system of envelopes if cash ever becomes impossible!

    Kari’s last blog post…One of those…

  37. … Great idea about the ING account. We sort of do the envelope thing for basics.. but I never thought about having the online accounts seperated…thanks for the tip

  38. We use cash for everything that isn’t a regular payment, although we’re switching to debit cards for gas because pre-pay is so much more work with two little ones in the car! We have the following categories: food (groceries & restaurants), clothing, travel, household expenses, gifts, dates, office supplies, education (this includes books for my husband as he gets a head start on grad school), and “allowance.” I spent so much more when I used debit cards, especially for clothing & household expenses. We have a budget template for each month, but find that if there’s lots of leftover money in, say, office supplies, we just won’t take the cash out for it that month. The money goes towards savings instead. To handle online purchases, we have a “savings” envelope. If I buy a book online with my allowance, I put the equivalent in real cash in the savings envelope. Before I hit the ATM, I check the savings envelope to see if there’s enough in there to drop the ATM amount. It works great for us. To anyone starting out with cash or a budget: don’t be discouraged if your numbers are off the first few months, keep with it and soon you’ll have a working budget that really reflects your spending/saving needs!

  39. Great post! I liked it so much I went and tried Pear Budget for myself. I mean 30 day free trial. Nice. So it’s FANTASTICALLY simple. I showed my very hard to please husband and he loved it too. Thanks for keeping it simple but explaining well at the same time.

    Andrea Phillips’s last blog post…Go out and SERVE SOMEONE!

  40. Oh. My. Gracious! This is how my daddy taught me to budget when I was in my 20s. This is how he and my mom budgeted for *years* and *years*!! I honestly didn’t know anyone else did the “envelope” system!! How cool! I used actual envelopes when I did this system. Love the idea of using zipper envelopes.

  41. We use a combination of methods — mainly Dave Ramsey, with some YNAB (“You Need a Budget”) thrown in.

    YNAB is a method and an inexpensive budgeting software that I stumbled across a year or so ago.

    The principal way YNAB’s method differs from Ramsey is keeping one month’s buffer in your checking account so you’re living on income from the previous month, not the current month.

    A cheaper Excel version of YNAB may still be available, but the full-fledged software package is worth the price (I think it’s $40?). The initial purchase price covers all future upgrades.

    You can create your own categories, it does splits like Quicken, and it downloads transactions from your bank. If you run over in a particular category, it’s deducted from what you budget the next month.

    When we budget with YNAB, we try to do it in the order Dave Ramsey recommends — you know, the most important things first (food, utilities, the roof over your head).

    It’s really helped us as we married, moved out of state, had me stay home, had a child, and bought a house (in one year’s time!!).

    Hope this helps,

    Cindy Rae

    Cindy Rae’s last blog post…Make a Leaf Pile For Your Habitat

  42. Hi! I have a question on this that I have dealt with. How do you put the exact amount of money in each envelope? When I tried this before, I would go into the bank bimonthly and ask for x $1, x$5, x$10, etc. I even asked for specific change, “Could I have 20 pennies, 16 nickles, 5 dimes, etc.?” Do you have a solution for my problem?

    Dovey’s last blog post…Soccer and Gymnastics

  43. I use the virtual envelope system using Budget for Mac. It works great and I (almost!) never overspend. I may have to transition from virtual envelopes to real envelopes soon though…we’re saving for a big move and I want to make absolutely *certain* we are able to save enough! I’m so glad somebody else out there does this!

    Laura’s last blog post…the golden love of October

  44. Hi!
    We are just starting the cash only system of budgeting. OUr credit card debt was getting out of hand.
    I found these really great “cash envelopes” on a website called crunchycute.com. They have several kinds to choose from.
    Sherry

  45. just stumbled upon your site.. do you live in Switzerland? I almost had a heart attack, I moved back to the states from there a few months ago and saw your picture of the \”envelopes\” and one of them is stuffed full of my favorite currency, the Swiss Franc! Maybe its just a random picture you got from someone.. anyway.. more on the topic.. When my husband and I merged budgets I made an excel spreadsheet with all of our expenses. No fancy programs. I used the online banking \’current activity\’ tab to make sure to update it at least every other day. I would make our budget months in advance, saving for holidays, paying off credit cards, saving for moving, etc, and when we would get off track a little bit I could quickly take a little off here or there and add it somewhere else. This system really worked for us, using debit cards and credit cards all the time. I paid off 3 credit cards, and saved loads of money that would probably have gone to less fun things otherwise.

  46. avatar
    Stephanie says:

    Hi Simple Mom!
    I have been trying to get on a budget for the past three years, with no avail! My finances have fluxuated so much I can’t get a handle on them. My main question is how do you share the envelopes with your spouse? My husband and I work, get gas, shop for groceries, and eat out at times when we’re not together. This is a point I’m really struggling with, any suggestions? I’ve thought about getting gift cards. Though if there’s a unused balance at the end of the month I’d rather it be cash to put back into our account. Hence, my conundrum: cash, debit, or gift cards?
    I’m going to try the PearBudget, it looks like it would be helpful.
    Thanks! = )

  47. Stephanie,

    What me an my husband do is have two sets of envelopes. i use these: http://laceyandtyler.blogspot.com/2009/02/fashion-cash-clutches.html.

    They are fashionable enough for me to carry around as a clutch or a wallet. I keep my categories (my money, my gas, groceries-i do the shopping, dining money, blow money).

    I also keep a second one at home for my husbands expenses and our other expenses that i don’t use everyday. ( His gas, his spending, any home, car, or dining money). That way, my husband can grab money as needed. It has worked great for us. It took him a little to get used to making sure he knows what they money in his wallet is for, but now he is well adapted.

    It has worked fantastic! You must do a budget with it and get rid of any plastic for it to work 100%.

    Lacey´s last blog post…A Twilight Guy?

  48. we have been using the cash only system for 3months after seeing dave ramsey. it has already made a difference in the way we spend money. i found some great fabric designer envelopes on a website that specializes in cash envelopes. it has helped me to get organized and keep my finances straight. she is a real sweet lady that will make your envelopes just the way you need them with labels for your own personal needs. try it out – the system works for us.
    http://www.crunchycute.com

  49. If you don’t like using cash for all your transactions, then use free software like Piggy Banks to follow the envelope method. You can get it at http://trypiggybanks.com.

  50. This is a great, great idea. I live abroad and a lot of our expenses are paid for in cash. This is a great way to organize ahead of time what we are spending money on and I also love that it’s a great way to teach our children about money. Thanks for the tip.

    Christine´s last blog post…The sweetest shoes

  51. I use the envelope system and just carry the cash for the month with me at all times. It’s not that much, basically like 500 dollars at the most, and dwindling as the month goes on.

    Since I’m often traveling by bicycle, it’s a big deal to have to go home to get cash if I decide to buy some groceries or whatever. So keeping the envelopes themselves with me works well.

    Even if they ever were lost or stolen, I figure I’ve lost way more than a month’s worth of cash by overspending when not using the envelope system, so I’ll be ahead of the game anyway.

    I like the concreteness of using the cash, and the ability to instantly see how much money is left for, say, groceries, when I open up the envelope to pay.

  52. My sister-in-law sent me the link to this site and I must say, I’m just so happy she did! I too am a big fan of the cash only system! I got tired of dog-earred envelopes though and craved something a little more stylish. So I created my own little business called Divvy Organizers. My Divvy’s have the practicality of a coupon /cash organizer on the inside but on the outside are as beautiful as a clutch. I noticed in your post that you said you are working with plastic pencil pouches…if you are craving something cute for your cash I would love to give you a free organizer in exchange for mentioning my little company on here?! Just a thought! If you want to check out my designs, you can go to my blog at http://www.divvyorganizers.blogspot.com or go straight to my shop http://www.divvyorganizers.etsy.com . Thanks for all your great advice!
    .-= Sarah´s last blog ..Welcome to Divvy =-.

  53. I just started a Dave Ramsey class at my church and my husband and I are starting the envelope system as well. Thanks for this article and the link. It’s a huge help!
    .-= Me, Myself & Pie´s last blog ..One-Bowl Chocolate Mocha Cream Cake =-.

  54. Just wanted to throw this out there for the author, and readers, pear budget looks like a great budgeting tool, but I use one that is free (and lets you split receipts-as mentioned in the q&a section). Mint.com is by the makers of Quicken and is FREE for personal finances. All you have to do is sign up. It syncs with your bank account so even if you don’t use envelopes for all household expenses, you can still assign categories to all of your debit & savings account transactions. Also, you can input your budget for each category and it will keep track of how much you’ve spent in each category (based on what category you’ve assigned a transaction to). No, I don’t work for or am in any way affiliated with mint.com, but I just found their site and am really excited to share with all of those out there looking to save money! :) Happy saving!

  55. LOVE, LOVE, LOVE to hear such great chatting about the envelope system for budgeting. I hope to convert as many people as possible. While I’ve only been using this system for about three years ( I’m sure I’d have more $$$ if I had used it sooner) I truly enjoy sharing it’s wonders with everyone (but try not to be annoying)
    I use http://snowmintcs.com. Easy, system. We have more money (not tons) and I don’t feel like we live paycheck to paycheck. Instead of looking at our bottom line in mour check book I look at the envelopes. The system allows for us to work with our debit card as well as cash. But it’s an envelope system never the less.

    Keep up the conversation. We’ve got to help the younger generation skip the mistakes we made with our money.

  56. LOVE, LOVE, LOVE to hear such great chatting about the envelope system for budgeting. I hope to convert as many people as possible. While I’ve only been using this system for about three years ( I’m sure I’d have more $$$ if I had used it sooner) I truly enjoy sharing it’s wonders with everyone (but try not to be annoying)
    I use http://www.snowmintcs.com. Easy, system. We have more money (not tons) and I don’t feel like we live paycheck to paycheck. Instead of looking at our bottom line in our check book I look at the envelopes. The system allows for us to work with our debit card as well as cash. But it’s an envelope system never the less.

    Keep up the conversation. We’ve got to help the younger generation skip the mistakes we made with our money.

  57. I just started using a cash only envelope system beginning January 1. So far, I have categories for groceries, kids (clothes and shoes), my personal (hair, clothes, etc.), birthday (kids & their parties, family, kids’ friends), and finally Christmas. I take out a certain amount of cash every week based on an annual budgeted amount for each category.
    I am amazed at how it instantly changed the way I spend money. I never felt like I spent frivolously, but I now realize that I just didn’t think through all of my purchases to determine if they were truly necessities. Now I finally recognize all of the different ways I can save money here and there by changing my daily spending decisions.
    I also found some great advice on another site that helped me fine tune my system a little bit more. Since I don’t want to be carrying around a ton of cash, I now carry a set amount in my purse as a “petty cash” fund. This way, I can pay for my purchases from any category still using cash, and then replenish the petty cash when I get home. It’s a lot better than finding myself at the store remembering that I needed something and not have the cash on hand and pulling out a credit card.
    I know my envelope system may need some tweaking over the next months or so, but I think I’m off to a great start. This has set me free, and I know longer feel guilty about every dollar I spend because it is all in the budget!

  58. I love using the cash system!! I created a FREE envelope template to make pretty envelopes using scrapbooking paper. There is a tutorial here: http://kelleighratzlaff.com/featured/free-envelope-template-and-a-tutorial/
    And, I also started up an Etsy shop to sell a different style of cash envelope here: http://www.etsy.com/shop/kelleighr
    I love that I can make cash envelope budgeting more fun for others while increasing my own income to pay off debt! My goal for this year is to pay off my student loans, and I think I’m gonna do it!!

  59. avatar
    Jessica Hill says:

    We completely overspend in all of the categories that are considered irregular expenses and groceries, etc. Is there a percentage in comparison to income taken in that we should keep in mind when we are setting up our envelopes? ie., clothing 3% or groceries 25% (These are just random percentages I am throwing out there.)

    • You know, I don’t know of any specific percentages recommended by people who “know” what they’re talking about. I just generally feel like when you know you’re spending too much, it’s too much.

      The one place where I’ve gotten help with crafting our budget and deciding where we’re spending too much is in Dave Ramsey’s Total Money Makeover forums. People there are super helpful in being honest with how you’re spending money, and give ideas for where you can cut. It’s a monthly subscription, but you can do it just a month at a time to see if you feel like it’s worth it.

      Hope that helps!

  60. I have a system that is similar to envelopes but I do it with different accts that all have different debit cards. I write on the back of the cards so I can remember what acct the card is for. A friend of mine saw multiple cards that all looked the same in my wallet and asked me about it. I said that I a “bucket” person. Really that is just another way of saying I have envelopes. I like the idea of having envelopes with cash but I am not sure I could stick that. So doing this with multiple accounts is the next best thing for me. One thing I have to be better about is “filling” the envelopes. Sometimes when the pay checks hit our main account, I do not get around to transfering funds into each account. I would like to be better about that.

  61. We use only cash for everything except the mortgage, utilities, and living expenses that are automatically withdrawn from our bank account. We have no consumer debt, except our mortgage, and we never use our debit card for anything except online purchases. When we make online purchases, we immediately deposit the amount spent into our account – the cash is pulled from the appropriate envelope. We have probably 20 active envelopes. Some I carry in my homemade envelope system, some are kept in our safe at home. We have 5 months of living expenses in our savings account, and we don’t touch that for anything! emergencies don’t happen because we have an envelope for household items (carpet cleaned, pipe broke, new rugs needed, etc) and for car repairs and registration, and for gifts for the year. That includes Christmas, birthdays, incidentals, Valentine’s day, Mother’s and Father’s Day… all holidays where gifts are included are planned for, and we pay cash.
    The envelope system is made from a Franklin planner binder, and I have created an envelope template on MS Word. I have attached velcro to keep them closed, and so that they don’t get “wings” from opening up and bending. It’s a great system – we’ve done this for 3 years, and it has saved our financial lives. Start now!!

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