Cash envelopes explained

Our story

We have been using the cash envelope system for 2 years. We listened to Dave Ramsey for 2 or 3 years before that. We didn’t think that the cash system applied to us. We didn’t have any consumer debt. Our only debt was our mortgage and we paid off our credit card each month.

Then came baby #3 and I desperately wanted to stay home with her. We started the envelope system at the beginning of my 3rd trimester. We were nervous for me to stay home and my hubby wanted us to prove we could live on what we thought he would make. 2 years later, we have almost paid off our house! Usually you think of children costing you money but baby number #3 saved us tons by inspiring us to buckle down. Below are my tips and tricks on how to use the envelope system effectively.

What you need

  • 10-15 envelopes. Our categories are blow money his/her, booze, grocery ( includes toilet paper and cleaning products), baby, kids, gifts, charity, home/car maintenance, restaurants. If you are just starting, I recommend a small (less than $100) misc fund. If you want pretty ones like in the picture, check out my Etsy store.
  • Cash. If you don’t have enough to take it all out for the entire month, then half your numbers and fill your envelopes twice a month.
  • Budget. Pin and paper work. We use excel. There are several apps everydollar,, YNAB.

Month 1

For your first budget you are not trying to cut expenses (unless you are in the red). Month 1 your goal should be get used to using cash and sticking to whatever budget you set. You WILL forget things. That’s what the $100 misc fund is for. By month 3, that misc fund should be $0.

What if you forget something?

  • Can it wait until next month? That is always my first question to myself. For example, I usually just get the kid’s hair cut whenever it starts to look long and I feel like I can fit it into my schedule. In the past, I would have felt like I HAD to get their hair cut now. Now I think, I can wait 2 more weeks, and we’ll put it in the budget next month.
  • Can we move money from another category to cover it? So don’t steal from envelopes without your spouse’s permission. There doesn’t have to be a big formal budget committee meeting. You can just say. I forgot Jason’s birthday. I’m going to take $20 from grocery. Is that ok with you? It’s that simple.
  • Get creative. In the past, if I didn’t spend $20 on every birthday I would feel like I wasn’t being a good friend, mother, human being. I have learned to make creative thoughtful gifts go a long way. For example bubbles and balloons are cheap and a big hit at a small child’s birthday party. As a parent who throws birthday parties, I will say that  I want people to come and enjoy more than I want another plastic thing for my kiddo. Keep that in mind.
  • Is it an emergency? If it’s truly and emergency like your AC broke or your car needs a repair, use the emergency fund. Just make sure that you and your spouse both agree it is an emergency. Again this can be a two-minute convo.
  • Write it down. Regardless of where in this list the thing you forgot falls, write  it down. I do this every month and then when we make the budget for the next month, I look at that list. Then next month’s budget you have less and less on your list. Your goal is to get that list to 0.

Cash is uncomfortable

Don’t be surprised when you go into the grocery store, and worry if you’ll have enough when you get to the checkout line. It hurts to pull out the cash and pay at first. Stupid things that I worried about when I first started using cash:

  • What if someone steals my purse?
  • What if I get to the checkout and don’t have enough?
  • What if my car breaks down and I need cash?
  • What if I spend it now and I don’t have enough for the rest of the month?

I am here to tell you that none, NONE of these have come true. Don’t give up. Each month will get better and better. Using cash for the first time is kind of like working out for the first time. It’s a little painful at first.

Things I don’t use cash for

Gas, this is the biggest thing we don’t use cash for. Gas, utilities, insurance and online purchases, we all use a debit or credit card for.

Online purchases can be tricky. Here’s what we do. We make the purchase. I like using paypal because it can hook directly into your bank account. Then we take the cash out of the envelope and put it in our “bank.” We have a small cash box in our room. At the end of the month, if we have made a lot of purchases this can have a lot of cash in it, and we just deduct this from the cash needed for next month. Make sure you put the money in the cash box right away. It is easy to forget.

When will it get better?

For me, it took me 3 months to get comfortable with the process and 6 months to get good at it. So I will say this again. Don’t give up. When you start the process, set a goal of doing this for 3 months. If someone is reluctant to get on board, ask them to try it for just 3 months and then after 3 months reevaluate.

Cutting expenses

If you have made it through Month 1, it’s time to cut expenses. Here’s where a lot of people go wrong in my opinion.

  • Don’t cut too much too fast. I’ll use myself as an example. When we started, our grocery budget was $1,000/month. Now 2 years in, my grocery budget is $750/month. I didn’t go from $1,000 to $750 in one month. I went from $1,000 to $900 to $950 to $800 etc. The longer you use cash the better and better you will get at shopping the sales and saving money. If you cut too much too fast, you are more likely to give up and break the budget.
  • You need blow money. A lot of people try to cut this back at first, but I will tell you a healthy blow budget will help you more in the long run. It helps for a couple reasons. If you have one spouse that isn’t on board as much, blow money can be the thing that convinces them to keep at it. Just like crash diets don’t work. Crash budgets don’t work. Giving yourself a little wiggle room actually makes you stick to the budget more.

Money left in an envelope

This is a fun problem to have. Sometimes we let this roll over from month to month and build up. We do this intentionally for gifts and charity. Sometimes we will put the extra back into the “bank” (our cash box) for next month and essentially it goes to savings because we withdraw less from bank. Sometimes we use the extra for something fun, like a night out.

Lets talk about contentment

A huge part of my journey has been my gratitude journal. Part of going on a budget means not buying things. For me the way to not buy things was to love the things that I already have. Every day I write down two lists. Today’s Blessings and Dreaming Big. In the first list, I just do a free association on what good things have happened to me today. Usually they are little simple things. Here’s yesterday’s list:

Today’s Blessings

  1. 1 more Etsy order
  2. Breakfast with Jon
  3. Eleanor took a good nap
  4. Mom coming to watch the kids
  5. Got a bunch of errands done

Dreaming Big. This is where I write down all of my goals for the year or the day. Things like Jon and I pay off our house or Eleanor sleeps through the night. Sometimes I think about things that are bugging me and I think what do I want to happen instead. Sometimes I just day dream and write it down.

The important things about these two lists is that there aren’t any rules about it. It doesn’t have to be a certain number. If I write a blessing down that happened yesterday instead of today that’s no big deal. If I write something down as a goal and it doesn’t happen I don’t sweat about it. If I skip a day I don’t worry. I don’t even worry about starting a new page each time or putting a date on it. That’s not the point. This process usually takes me about 5 minutes and my favorite time to do it is sitting in the pick up line at school.

In addition to my journal, I have tried to fill my mind with books that talk about simplicity and decluttering. Here are a few of my favorite reads:

  1. The Happiness Project 
  2. The Life-Changing Magical Art of Tidying Up
  3. One Thousand Gifts: A Dare to Live Fully Right Where You Are
  4. Living well and spending less 

Unexpected benefits


Some weird things started to happen that I didn’t expect when we made the switch to cash.

  • More organized. Organizing my finances, organized the rest of my life. We do a calendar each month and decided which days the kids are going to eat school lunch. I meal plan and know what is for dinner each day to save on money. This also saves me on time.
  • No more buyer’s remorse. I am so careful about spending my money now that I don’t buy an impulse shirt or piece of clothing and regret it later. I always try everything on before I buy it and make sure I absolutely love it before I hand over my cash.
  • Marriage bliss. We didn’t fight a lot about money before, but when we did feel the pinch we would go to our credit card and start saying what did you buy at target, why did you spend $50 at Dick’s sporting goods? Now that we use cash, that paper trail isn’t there to bicker over. We also are never surprised because we know how much we are going to spend.
  • Less stress. This sounds like a no-brainer, but it is worth repeating. The less debt you owe the less stress in your life. Lowering our debt has just lowered our overall stress level. During this journey we have had a baby, I switched to part-time and Jon was laid off. All of these very stressful things were no problem because we had our expenses under control and had a healthy emergency fund to fall back on.
  • Better, happier jobs. Related to above, we have made different decisions about what we do and how long we work because of our financial situation. I will argue that I am a better worker because of it. I switched to part-time. I opened an Etsy store. Jon switched career paths and has gotten out of the cubical. All because we didn’t feel trapped by huge debt payments.

The end

Wow, if you made it this far, thanks for reading and best of luck to you on your debt-free journey.