How to Gain Financial Responsibility With the Envelope Budget System

Get ready to grab your keys and go to your local office supply store! It's time to create a sustainable budget you can stick to.

It’s the morning after a fun night out with your friends. After grabbing dinner, seeing the latest movie, and munching on tons of theater snacks, you could use a little alone time and retail therapy. You figure you’d grab an iced beverage from your local coffee shop and hit up your favorite shopping district. Oh, yeah, and maybe it’d be a good idea to snag groceries for the week. 

After a long shopping day, you look at your scores and semi-regret the fitted graphic tee you bought. You know you’ll probably never get around to wearing it, but it was on sale, so why not? And then you remember you still have to get groceries! 

So you walk through the grocery aisles, not thinking about what you’re putting in your basket. That is until you’re at the checkout, trying to figure out what you need to put back because… your card’s declined? Yikes! 

woman looking insecurely at store displays with shopping bags

While you had a great weekend, at no point at all did you stop to look at your bank balance. You have *the magic card,* so there’s no need. Right? Wrong. You swiped your card left and right – without a care in the world – which could be fun, except now you don’t have the ingredients you need for avocado toast.

Sound’s like you could have used the envelope method. 

What Is It? 

The envelope method – not to be confused with TikTok’s envelope money-saving challenge – is a budgeting technique that helps you manage your finances and create a spending plan. For this system, you need two things: your hard-earned cash and a handful of envelopes. 

You’ll label each envelope with a category of your choosing. For instance: rent, utilities, food, and entertainment. Inside, you’ll put the categorized money you plan on spending for your monthly budget and commit to spending that money only. 

Why Is It Better Than Other Methods? 

woman planning out budget envelope method

You could go for a digital method of saving, using apps like Mint or creating a spreadsheet on your computer. But there’s something about seeing and handling your physical cash that strengthens the wires in your brain to know just how much you have to spend. While there will always be a debate about whether cash or card is better, it’s hard to disagree with valid points for cash.  

Two of the most relevant points Megan Elliot makes in her article “11 Reasons Why Cash Is Still King,” are that cash will help you spend less and stop you from increasing your debt amount. Unlike the above scenario, where you’re dwindling your bank account without any awareness, cash has a hard limit you’ll see every time you look in your wallet. Seeing what you have left will make you think twice about those impulsive buys. 

With enough of those “I-just-have-to-have-it” purchases stacked up, you could find yourself blowing your budget – savings plan or not. Even worse, you could spend more than you actually have, incurring overdraft fees and racking up money you owe the bank. Who wants to have to pay a bank for spending money? 

And speaking of debt, if you’re using a credit card, you’re definitely putting yourself in a hole with repayment and added interest. The envelope method will curb overspending. If you don’t have the cash on hand, you can’t spend it. 

How Do I Do It? 

girl sitting at computer desk with laptop thinking

Like any budgeting method, how you choose to go about it is personal and entirely up to you, but we can give you a general gist of the process. 

Step 1: Analyze your monthly cash flow. The first step is to look at your monthly income and expenses. How much do you bring in, and how much do you spend? Go through your bank statements from the past one to six months with a fine-tooth comb and categorize each line item how you see fit.   

Step 2: Consider your lifestyle and set your priorities. Did any of your past purchases make you cringe or roll your eyes? Is there any place where you’d like to spend less? Maybe instead of having five streaming subscriptions, you want to put that money in savings. 

Really think to yourself: “What are my priorities and how much do I need to spend on them?” Your priorities may include rent/mortgage, food, bills, transportation, hobbies, toiletries, clothing, and entertainment. 

Maybe monthly getaways are important to you. If so, that could be a category, too. Or maybe you have savings goals. Those could be categories, as well: “new car,” “dream vacation,” or “say yes fund.” 

Step 3: Create your categories. Depending on what works best for you, you can break these down as much as you want. For instance, “food” could be separated into “groceries,” “fast food,” and “restaurants.” Or “utilities” can become “water,” “heat,” “electric,” etc. 

When creating these categories, be realistic with yourself and make sure it’s a system you can keep up with. You want this to be sustainable, so you can stay committed. 

woman handling cash budgeting smiling

Step 4: Label your envelopes. After you have an idea of how much you want to spend and where, label each envelope with its respective category. If it helps, you could also put the dollar amount on the inside flap so that next month, you can remember how much you started with. 

Step 5: Put your cash in your envelopes. If you don’t have the money on hand, you may need to run to the ATM. Ideally, you already have it there and used it to play around with the budgeting in step 3. Either way, stuff the cash in its respective envelopes. 

Now, as this is a monthly budget, you may not have all the money yet. If it makes things easier, you can create a weekly budget instead. Or you could stash whatever money you do have and refill your envelopes with your next paycheck, as needed. 

Step 6: Spend your cash! Wisely. The cash you have allotted in each envelope is the cash you have to spend for the month. Promise yourself you’ll stay within your budget! 

girl handling cash

Do I Need Fancy Equipment? 

Now, you may have seen a few ads for products like “money evelopes” or “budget envelope printables.” Will they make the process easier and more fun? I suppose if you opt for the more fashionable ones, you may get excited opening your envelopes and sifting through them at check out. 

Sure, they very well could bring a little pizzazz to your life and help you stay committed. Art is one of the many enjoyments of life, after all. Some people also work better with color coding and organization. 

And if you need further explanation, printables could help you walk through the process, answer questions you still may have, and prompt you to think about your budget in a way you haven’t. 

Now, do you need fancy envelopes and printables? The bottom line is no. You could still use the envelope budgeting system using plain white envelopes you pick up from the grocery, office supply, or discount store. 

But Really, Cash Only?

This is a personal decision. When I use the envelope method, I do not cash out entire paychecks to put into envelopes. I have most – not all – of my savings in a digital account, and because I don’t plan on spending 100% of my checks, I only cash out the portion I plan to spend. 

Sometimes it’s a little easier to separate your savings. For instance, I have a savings bank account and use envelopes for things like “new camera” or “shopping spree.” 

Also, if you choose to pay your bills digitally, that may not be a category for you. Instead, you may use your bank account for that and use envelopes for more discretionary spending. Again the best way to go about the envelope budgeting method is to make it work for your lifestyle!  

mother and child at atm

Digital Apps 

If you’re still skeptical about the cash-only thing (even with my hybrid method), I suppose I should tell you that there are digital apps that offer the same idea. I’ll emphasize that this could still lead to overspending, but you know you best. 

Mint is a great budgeting app I recommend for planning out your expenses and savings goals. I use it in conjunction with the envelopes. And while I’ve never used it, Goodbudget seems like a solid option, too. It’s “a home budget app based on the envelope budget system.” 


Like with almost anything, there are cons that counteract the pros, and it’s up to you to decide whether the whole thing is worth it. You may not want to take regular trips to the ATM and have cash on your person. It’s a small trade-off for a great return, though: financial responsibility and freedom. 

And by not using plastic, you’re not getting credit card rewards. But if you rarely use your credit card anyway and won’t miss the bonus that also comes with incurring interest, try out the envelope method. 

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