Buzz
Some budget categories are easy to set up and follow through with. Your rent tends to remain the same. Your gym membership fee is likely a fixed charge. You can generally predict how much fuel you'll need to get to and from work during the pay cycle.
While fixed expenses might make you feel like you’ve got your budget under control, more flexible spending categories can threaten the entire budget you’ve established. You set a $50 limit for clothing this month, but now you’re staring at multiple H&M shopping bags in your hallway. Your friend’s birthday dinner was meant to be casual, yet someone ordered three appetizers and a bottle of wine, and suddenly the bill is being split among the group.
When your budget goes off track, you have the chance to pause, reflect, and adjust for the next month—that's the beauty of treating your budget as a living, breathing plan. But if you're in need of a little extra motivation to stick to your goals, consider going back to basics with the tried-and-true cash envelope budgeting method.
The envelope method isn’t just something my mom used in the ‘90s! This budget-planning technique was popularized by financial expert Dave Ramsey. While I may not agree with everything Ramsey advocates, I’ll give credit where it’s due—some of his strategies for gaining control over your spending are effective.
How to implement the cash envelope method
The initial step in setting up your cash envelope system is determining your monthly budget. You’ll need to figure out what works best for you and decide how much to allocate to each category in your life. Remember, no need to compare your budget with someone else’s—this is your unique approach. There are no right or wrong answers here.
Next, select the categories where you'd like to monitor or limit your spending. Maybe you’ve gotten a bit too carried away with online shopping. Or perhaps you went a little overboard during the holidays, and now you're facing the aftermath of credit card bills from your generosity.
Common categories people switch to cash envelopes for include “groceries,” “gifts,” “entertainment,” and “dining out.” At the start of the month, you decide the cash amount to place in each envelope, which you will then use for the designated purchases throughout the month.
Once your cash runs out, that’s it for the month. No detours to the ATM for more, no sneaky withdrawals from other envelopes. You’re finished until the new month begins, and you’ll need to wait until the calendar resets to refill your envelopes with fresh cash.
As for keeping your cash in order, Ramsey offers a range of products to help you stay organized. But you don’t have to spend $14.99 (plus shipping) on a stylish faux checkbook. A simple envelope with categories written on the front works just as well. After every purchase, jot the total on the envelope or tuck the receipt inside.
This isn’t an advertisement for flashing large sums of cash in public. How much you carry will depend on your budget. And if you think carrying an envelope around is too conspicuous, you can always paperclip the bills for each category together inside your wallet, along with a note marking the category.
Here’s how the envelope system plays out in real life: imagine you're heading out to the movies. You could grab the envelope or paperclipped cash marked “entertainment.” If you’re in luck and the envelope has enough, both you and your date can enjoy your own popcorn. If not—goodbye MoviePass!—you might want to stash some snacks in your pockets before heading out. The envelope controls the game!
The envelope system works because it’s uncomfortable.
When I meet friends at a bar, I’m often the first one to arrive—an anxious overachiever by nature. By the time my friend shows up, I’ve already had a glass of wine, and I’m feeling like a carefree, generous Miss Moneybags. "Oh, I’ve got a tab open!" I’ll say. "Just add it to my tab!" Thirty-four dollars and a few hours later, we’re wrapping up happy hour. Which would be fine—if I didn’t later realize how much I spent during all those happy hour outings.
Now, I grab a $20 on my way out the door from my larger “bars and restaurants” envelope—and I stretch it further by leaving the envelope at home. Rather than letting an open tab run, I simply order a drink. The bartender gives me the drink, tells me the price, and I hand over the cash, getting change in return. This way, I always know how much I have left for the night’s spending.
The envelope method works because it’s uncomfortable. Handling cash and handing it over to a cashier hurts your brain and soul far more than using other payment methods. It’s not going to stop you from buying things, but having to physically reach for cash can help you hold back on spending more than you might realize. No one wants to face an empty envelope when there's still plenty of month left.
What about online shopping?
Meal kits delivered to your door, auto-shipped dog food, those inexpensive pants you buy on eBay—there are countless excuses you could offer for saying “credit cards are better than cash, and besides, you can’t use cash on the internet!”
Perhaps this method isn't right for you. Or maybe it’s just right, but only for certain areas: that daily coffee, a few new houseplants, sneakers, or those yard sale treasures. If unsubscribing from Old Navy’s relentless emails is enough to curb your impulse online shopping, cash envelopes might take your efforts a step further.
Ultimately, Uncle Dave’s main point about this budgeting system rings true: “The envelope system works because it forces you to be intentional about where and how you spend your money.” All it requires is a few envelopes—and if you use the ones from your junk mail, you’ll save even more on the envelope costs.
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