How the Money Envelope System Helps You Cease Overspending

In want of a severe cash reset? Going again to money might be the remedy in your ailing price range.

Popularized by fashionable private finance patriarch Dave Ramsey, the money envelope system encourages you to toss apart your pockets and depend on pre-labeled envelopes stuffed with actual, bodily cash.

Can the Money Envelope System Actually Curb Spending?

Like every budgeting technique, a lot of the success of the money envelope system depends in your dedication and follow-through. However more and more, even youthful generations are discovering that going again to money, whereas a bit retro, helps them to be extra cautious about what they’re spending.

Nonetheless, notice that the money envelope system just isn’t a budgeting technique by itself. You’ll nonetheless have to determine the right way to price range for bills and determine how a lot you’ll put apart for financial savings earlier than you begin stuffing envelopes with private spending cash.

How the Money Envelope System Works

You don’t have to make use of this technique in your mounted bills, like your hire or mortgage, automotive fee or debt funds. You’ll be able to automate these recurring bills because you’re seemingly required to pay the identical quantity on the identical date every month.

Your water or electrical invoice could fluctuate from month to month, however deal with it like your mounted bills. You’re unlikely to go on a splurge and overspend in your utilities. And since utility payments are primarily based on utilization from the earlier month, you’ll be able to’t decrease your invoice by deciding to make use of much less water or electrical energy this month.

Wish to handle your month-to-month revenue higher? Attempt degree billing. Many utility firms provide this method so you’ll be able to degree utility payments to a hard and fast quantity.

You additionally don’t must mess with any auto drafts for saving or investing. You aren’t going to profit by taking cash that may be incomes curiosity in your retirement accounts and setting it apart in a money envelope.

As an alternative, you’ll use money for areas the place the quantity you spend can differ: fuel, groceries, weekend adventures or clothes, for instance.

It’s these variable bills that usually trigger folks to blow their budgets. However the money envelope system is designed to maintain budgeters on observe by having a finite sum of money to spend.

Able to attempt it?

Begin the Money Envelope System in 3 Straightforward Steps

It’s time to commerce swiping plastic for counting paper.

Step 1. Decide How You’ll Allocate Your Cash

First, that you must create a price range to find out how a lot cash it’s a must to spend every month.

Beneath are a number of budgeting strategies to contemplate. Whichever budgeting model you select, be sure to get a good suggestion of what you’ll be able to afford to spend in every of the classes you’ll observe with the money envelope technique.

Taking a look at your financial institution and bank card statements from the previous few months and analyzing the way you’ve been spending could be an effective way to find out how you must price range your funds.

  • The 50/20/30 Methodology: With this technique, you dedicate 50% of your revenue to necessities like housing and groceries; 20% to monetary targets like saving, investing and debt reimbursement; and 30% to private spending on all of the enjoyable stuff.
  • The 60% Answer: Use 60% of your revenue for bills you’re dedicated to. This may embrace requirements plus the bills which are most essential to you — whether or not that’s your fitness center membership, extracurricular actions in your children or tithing to your church. The remaining 40% could be spent nonetheless you select.
  • Zero-based budgeting: Get particular and assign a spending restrict to all of your price range classes till each greenback is accounted for. Take your revenue and subtract your bills alongside along with your financial savings and funding allocations, and you must find yourself with $0.
Professional Tip

Unsure which budgeting technique is best for you? Take our quiz to get customized suggestions on which of the favored budgets you must attempt.

Step 2. Resolve Which Money Envelope Classes to Use

Subsequent, seize a stack of envelopes. Label every one with a spending class, like takeout meals, groceries, film nights or clothes. Your envelopes will differ relying on what you’ve included in your price range. You would possibly wish to color-code every one in order that they’re simply distinguishable.

Contemplate how particular you wish to get. Do you wish to have one “self-care” envelope with $100, or would you favor to place that money into separate envelopes for manicures, yoga courses and wonder merchandise?

Listed here are a number of budgeting classes you would possibly wish to use envelopes for:

  • Groceries
  • Eating places/bars
  • Family provides
  • Toiletries
  • Physician’s workplace copays
  • Remedy/nutritional vitamins
  • Pet care
  • Fuel
  • Trip sharing
  • Clothes
  • Hair care
  • Leisure
  • Presents

A superb apply is to have one envelope for miscellaneous bills — to cowl unexpected issues that come up however don’t warrant dipping into your emergency fund. Possibly your mobile phone display screen shatters and also you need a alternative, or that you must rent an exterminator for an surprising pest drawback, for instance.

Step 3. Distribute the Money and Spend Accordingly

Every time you receives a commission, go to your financial institution or an ATM and take out money to fill your envelopes. Say you wish to price range $500 per 30 days for groceries and $100 per 30 days for fuel. Should you receives a commission as soon as per 30 days, you’ll take out $600 on payday. Should you receives a commission twice per 30 days, you’ll take out $300 every time.

Be mindful: In case your ATM spits out solely $20 payments, you could want to go to the teller or undergo the drive-thru to get money within the increments you need.

After you separate the money into its acceptable envelopes, you’re free to spend… however properly, in fact. As soon as an envelope is empty, don’t cheat and attain in your credit score or debit card. You’ll have to attend till it’s time to fill the envelope once more!


  • Helps curb impulse spending
  • No overdraft charges or bank card debt
  • Makes buying on-line harder


  • No bank card rewards
  • Some shops are cash-free
  • Finest for one-person budgeting
  • Cut up spending classes are difficult
  • Some security issues
Sharon Steinmann/The Penny Hoarder

The Execs of the Money Envelope System

Some great benefits of the money envelope system are fairly important.

  • You begin considering twice about your private spending. Swiping a card to pay for one thing is straightforward. So is clicking a button to make an internet buy. However paying with money forces you to have a look at the cash, contact the cash and contemplate what you’re paying in trade for a services or products. Don’t be stunned should you discover you’re spending much less.
  • It’s inconceivable to incur an overdraft price, have your debit card declined or rack up bank card debt. Once you’re out of money, it’s not enjoyable, however at the least you’re not within the pink. Keep in mind: Budgeting just isn’t an ideal science, and also you would possibly underestimate — or overestimate — the amount of money you allocate in sure price range classes. You could have to regulate your money envelope budgeting a couple of times (or a number of occasions) earlier than you discover what works for you.
  • It will possibly assist you resist the urge to buy on-line. You’ve dedicated to utilizing bodily money, so that you’ll want to buy in individual. However right here’s a workaround should you do determine you actually need to make a purchase order on the net: Take money from the assigned envelope and deposit it again into your checking account to cowl the acquisition. And resist the urge to withdraw cash when you’re there.

The Cons of the Money Envelope System

This method does even have a number of disadvantages, particularly for these of us not accustomed to paying for every part in money. Listed here are some options to potential issues you would possibly face alongside the way in which.

Downside: You miss out on bank card rewards.

Sadly, paying with money received’t assist you earn a free flight.

Answer: You could possibly use your bank card to pay mounted bills, like your mobile phone invoice or automotive insurance coverage. Simply be sure you repay these expenses instantly so that you get the reward factors however don’t rack up debt.

Downside: Some shops and eateries are going cash-free.

That is to hurry up the fee course of and keep away from counterfeit payments. It may be difficult to pay with money in tech-friendly retail environments.

Answer: Try fee choices upfront of visiting a new-to-you store or restaurant. Simply as there are cash-free institutions, there are additionally locations that settle for solely money, like some road distributors or meals vans, and companies that offer you reductions for paying money, like some fuel stations.

Downside: You’re managing a price range for a couple of individual.

The money envelope system will get slightly extra complicated while you’re doing it with a accomplice or partner.

Answer: Earlier than you begin utilizing the envelope technique, discuss along with your accomplice about methods to distribute money appropriately. This technique is all about planning forward.

Should you each use roughly the identical quantity of fuel every month, you must divide the money in your “fuel” envelope equally between one another. If one accomplice tends to do many of the grocery buying, put many of the cash out of your “groceries” envelope into their very own money envelope. The opposite accomplice can carry a smaller proportion of the money of their grocery envelope for infrequent journeys to the shop.

Downside: Your bills fall underneath a number of budgeting classes.

Say you run to Goal and get diapers, pet food and detergent. Which envelope do you pull from?

Answer: Don’t be afraid to separate your purchases into separate transactions. It could take slightly further time on the register, however it’ll assist you preserve an correct system. Additionally, be clear about which bills fall into which classes — and keep constant.

For example, should you pay for diapers from the identical envelope as private care gadgets like bathroom paper or sanitary pads one week, don’t swap it up the subsequent week and use your youngster care envelope to purchase diapers.

Downside: Carrying round lots of money poses a security danger.

Thieves could view you as a goal in the event that they catch you opening up an envelope with a great deal of money. And calling your financial institution to freeze your account or dispute unauthorized purchases received’t work while you’re utilizing money.

Answer: Take solely the amount of money you estimate you’ll spend per outing. For instance, in case your month-to-month grocery price range is $500 and also you go grocery buying 4 occasions per 30 days, take out solely $125 for every grocery buying journey.

Should you’re going solely to the hair salon, simply take the envelope for hair care bills and go away the others house.

Professional Tip

Should you determine the money system is one you wish to spend money on, purchase your self a money envelope pockets that’ll allow you to hold every part organized and zipped up.

Twenty dollar bills sit in an envelope.
Aileen Perilla/The Penny Hoarder

4 Knowledgeable-Degree Suggestions for Money Envelope System Followers

You don’t have to get fancy to achieve success with the money envelope system, however should you’re able to take it even additional, attempt a few of these superior suggestions.

1. Monitor Every Buy From Every Envelope

Jot it down on the envelope when you’re ready in your groceries to get bagged up. Or stash paper receipts in your envelope, and write down your bills on the finish of every day.

This further step will assist you be much more aware about what every greenback you spend goes towards and finally lower your expenses on bills.

2. Attempt Variations on Plain White Envelopes

You could possibly splurge on a pack of industrial quality, color-coded envelopes to handle your money price range. Some choices even have strains for neatly monitoring your bills as you go.

Should you journey with a number of envelopes at a time, it’s your decision an expandable file folder or a small accordion file folder, or a money envelope pockets.

3. Digitize Your Envelopes

Attempt a number of totally different storage techniques and even digitize it. Working with bodily cash is among the important parts of this method, however there are methods to get round that should you discover it too inconvenient to hold round {dollars} and alter. Enter budgeting apps.

Goodbudget provides you digital envelopes and might sync your price range along with your accomplice or partner so you’ll be able to work collectively towards saving cash. You’ll be able to attempt the free model or buy an upgraded model for $8 per 30 days or $70 a 12 months.

4. Try to Have Leftover Cash on the Finish of Every Month

This will likely show the hardest problem of the envelope technique. But when you may get by the month with out encountering an empty envelope, congrats!

You could possibly roll any further money into the subsequent month and have the ability to spend slightly extra. Or you’ll be able to put the excess right into a financial savings account or use it to pay down debt — budgeter’s alternative!

Kaz Weida is a senior author at The Penny Hoarder. Nicole Dow is a former senior author at The Penny Hoarder. Lisa Rowan contributed.

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