The Cash Envelope Budget System

The Cash Envelope Budget System
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Although I personally operate a digital version of the cash envelope budget system as I have talked about in my post Automatic Budget for the Lazy. The envelope budget system is still one of the easiest and effective budgeting tools out there. Especially when first starting out. It is much easier to control and track your spending when you are handing over your cold hard cash.

What Is The Cash Envelope Budget System?

The envelope system as you may guess involves using envelopes to put your cash into spending categories. Dividing your spending into specific categories such as groceries, entertainment, clothing, dining out. It is entirely up to you how granular you wish to go with it. If you have a few broad categories it may be difficult to determine where a particular expense should go. If you have too many categories it will get harder to maintain the system.  Allocating money makes it easily keep track of how much you have left. It demonstrates where you can or may need make changes in your budget.

I would suggest starting with the pay yourself first method and allocate money to fixed expenses, savings, investment, tithing and debt payments. With money allocated to these use the envelope system for taking control of your discretionary and variable spending.

How The Envelope System Works

Create a budget

The first step is to determine your income and outgoing expenses so you can work out how much you have to allocate to your envelopes in order to achieve your financial goals.

Define your spending categories

You can keep it really broad or you can break it down to the nitty gritty its really up to you how far you need or want to go. Create an envelope for each spending category with the name on the front and room for a tally or notes on the back.

Fill your envelopes

 At the beginning of the week, fortnight or month depending on your pay frequency put the allocated money into each of the envelopes. As you make a purchase from a category take the money from the corresponding envelope returning the change. Update the tally on the back of the envelope.

Empty envelopes

If you run out of money in an envelope then you can not spend any more in that particular category until the following period. It is entirely up to you if you want to allow yourself to tap into another envelope if you run out. If you decide to allow this flexibility set clear rules beforehand such as: The grocery envelope is depleted so I can tap into the entertainment envelope but not vice versa.

If you do not believe you have the self control it may be best if you do not allow spending from other envelopes. Keeping it as simple as possible is likely to be the best approach.


If you have money left over in envelopes at the end of the period put it towards your other savings and investment goals. Reward yourself for sticking to your budget or allocate additional funds to the next periods entertainment envelope 🙂

Rinse and repeat


  • Adjust the number of categories and the allocation amounts over the first few weeks or when required.
  • Adjust the period so that it works best for you- Weekly, Monthly, Fortnightly.
  • Have a look through bank statements and receipts to get an idea of your current spending.
  • Reduce your bills to increase your discretionary income available
  • Reward yourself for achieving your goals.


The cash envelope budget system is a great way to develop a good discipline with your spending habits. If the envelope system is not for you there are many online tools and apps that allow you to setup a digital version of the envelopes.

I would love to hear your experiences with the envelope system or a digital equivalent. Contact me here or leave a comment below.

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