Are you ready to revolutionize the way you manage your money?
First let me hit you with some surprising statistics:
- People spend 12-18% less when they use cash
- People who use cash are more likely to appreciate the value of money
- The average non-cash transaction is $112, while the average cash transaction is only $22
What am I talking about?
The cash system. And although this method is known as grandma’s “envelope system of budgeting” most of us never heard it from Grandma.
This method was popularized by financial expert Dave Ramsey. Thanks to Dave and his book, The Total Money Makeover, he’s helped millions of people take back control of their financial lives and become debt-free.
Now it’s your turn!
So this article covers 3 things:
1. What the cash envelope system is (and how to use it)
2. 6 free cash envelopes templates
3. A list of FAQs about the cash envelope system
How Cash Envelopes Work
Let’s assume your take-home pay is $3,000 per month.
Of your take-home pay, you budget $100 a month for gas (or $50 per paycheck.) When the month’s first paycheck hits, you go to the ATM and withdraw $50.
You put that $50 in an envelope and label it “Gas.”
Every time you buy gas, it has to be with the money from your gas envelope and only that envelope.
And remember, you’ve given yourself $100 to spend on gas. So if you spent your last $20 on fuel yesterday, then you have to make that tank last you until your next check.
Once the cash is gone, it’s gone.
Don’t be tempted by your debit or credit card. Stay focused on why you started using cash envelopes in the first place – to develop better spending habits.
Broken down into steps:
Step 1: Pick a category and budgeted amount
Step 2: Every time your paycheck hits, stuff your envelopes with cash.
Step 3: Only use the amount allotted to you in your cash envelopes.
Related: Our Top 5 Cash Envelope Wallets
Choosing your cash envelope categories
Now you’re probably wondering:
Some of my bills are auto-pay every month. How do I handle those with a cash envelope system?
Don’t worry about your automatic payments. Some things – like your cellphone or internet bill – will be automatically drafted from your account each month. That’s perfectly fine.
Those bills are fixed expenses. They can be left on auto-pay because you don’t have to worry about sticking to your budget. There’s no spending temptation.
I recommend using our free cash envelopes template to focus on things like food, transportation, and recreational spending.
Here are a few common cash envelope categories:
- Eating out
- Fun money
- Doctor visits
- Personal care / Beauty
Creating your first cash envelope budget
To get the most out of your cash envelope system, I recommend using a zero-based budget.
What is a zero-based budget, you ask?
The idea is simple:
A zero-based budget just means you give every dollar a name.
So if you budget all your expenses and still have $300 leftover, then you aren’t done budgeting yet.
You have to assign that $300 to savings, debt, fun money – wherever. Just make sure you give it a place.
This ensures that you don’t waste your leftover money.
Here’s a zero-based budget in action:
See how every dollar is assigned to a category?
That’s how you know you’re on the right track. Plus, it’s easy to fill your envelopes when all your income is assigned to a category.
But don’t just take it from me:
Studies show that people who use zero-based budgets pay off 19% more debt and save 18% more money.
Cash Envelopes Template:
Above is a set of free cash envelope templates for you to use. All you do is print them out, fold and glue them, then label them.
I recommend using 3 things:
1. Hammermill paper from Amazon
2. An extra-strength glue stick from Amazon
Use a good quality paper to print your cash envelopes on. Paper thickness and durability are important. You’ll be pulling your cash envelopes in and out of your purse, so you want it to withstand general wear and tear.
A heavier paper like this one works well with patterns, solids, and strongly saturated colors. Prints and colors show up beautifully on it.
For glue, I like using this extra-strength glue stick. I’ve tried various types of liquid glue and they were messy and sometimes bled through my envelopes. So I needed something with a good strong bond and I was pleasantly surprised with how well this glue stick worked.
FAQs About the Cash Envelopes Template
- Is it safe to keep this much cash on me?
- What do I do about online purchases?
- How do I use cash envelopes as a couple?
- How do I use this method on an irregular income?
- What should I do with loose change?
- What if I spend all the cash?
- What if I have money left over?
- What about the things that I use auto-pay for?
- Should I use a cash envelope binder?
- I’m paid weekly and my partner is paid biweekly. How can we make this work?
- I have a fixed income but my partner’s income is irregular. What do we do?
- What are the pros/cons of the envelope system?
- What do I need to get started?
1. Is it safe to keep this much cash on me?
Having lots of cash on hand can be nerve-wracking. What happens if it gets lost? Or worse, what if it gets stolen?
I know how you feel. That’s why I don’t recommend carrying all your cash envelopes templates around at once.
For example, if you’re just going to dinner and a movie, do you really need to carry your grocery envelope too?
Probably not, so you can leave it at home.
Of course, the level of comfort varies from person to person. When we carry anything valuable around with us – whether it’s jewelry, cash or something else, it’s always smart to be cautious.
If you’re worried about safety in your home, then you can use a fireproof and waterproof bag like this one. It doesn’t take up much space and comes with its own combination lock.
Cash envelopes aside, I think that everyone should have at least one safety bag or security box in their home. It’s great for safeguarding your cash, insurance papers, social security cards, and birth certificates.
2. What do I do about online purchases?
The easiest thing to do is give yourself a little room in your budget for online purchases. For example, you can budget $100 per month for online shopping.
Each time you buy something online, you’ll update your budget to reflect that.
Another way is to still withdraw cash from your ATM like you normally would. If you buy something online, you can deposit the cost of that item back into your bank.
And for online purchases, I recommend using a cash back app like Rakuten to save while you spend. Every time you make a purchase online, Rakuten will pay you cash back.
For example, Amazon offers up to 5% cash back through Rakuten. It’s a great way to save money on things you’d normally buy anyway. So even though you can’t use your cash envelopes template for online purchases, you can still save money online.
All you do is sign up for a free account and use the search bar to find your retailer.
Here’s how that looks:
Note: Rakuten offers a $10 welcome bonus for signing up.
3. How do I use cash envelopes as a couple?
So you’re probably wondering:
What do I do when my husband goes grocery shopping? Or when my wife wants to eat out with her coworkers?
The fix is to take out a little money from your envelopes and give it to your partner. For example, my partner eats out much more than I do.
So for our $100 “eating out” envelope, I give him $75 and keep $25 in my envelope.
The same with grocery shopping. He stops by the grocery store occasionally to pick up a few things. So I take a little money out of my grocery envelope to give him.
The key is to make sure your partner is 100% on board. And that can be a hard thing to do. After all, one of the most common things couples argue about is money.
But here’s the deal:
My partner wasn’t thrilled with the idea of carrying cash around and feeling like he was given an “allowance.”
So in the beginning, he’d rather not eat out than have to use the cash.
And you know what? That was fine. If he would rather skip lunch than use cash, that was his choice.
But after seeing how much money we saved over time, he became on board.
So if you’re dealing with a partner that absolutely won’t commit to using cash and it causes fights – then it might be sign of a larger issue.
Sure, using a cash envelopes template requires a few seconds more of your time over swiping a card, but it really isn’t that big of a deal. Your partner shouldn’t throw a fit or cause arguments because they’ve traded in plastic for a few 20 dollar bills.
And once they realize how much money you’ve saved, they should be happy, right?
4. How do I use this method on an irregular income?
It all starts with your budget.
So if your income is irregular, then the income used in your budget will be based on an estimate. You can take a monthly average of the last year or find your lowest paystub and budget using that amount.
And when it comes to your expenses, you’ll use your expenses number as your baseline.
This means you’ll save money from the higher income months to cover the lower income months.
5. What should I do with the loose change?
You don’t want coins falling out of your envelopes while you’re trying to pull out your bills. So it’s easier to separate your bills and coins using a coin pouch.
6. What if I spend all the cash?
Well, if you’ve realistically predicted the needs for all your envelopes, then you win!
But there will be times when you spend all the cash in one envelope and need more. This is where your miscellaneous spending envelope comes in. Every cash envelope budgeter should have a miscellaneous envelope.
Your misc. envelope is perfect for unexpected expenses like surprise events or gifts.
This amount can be anywhere between 3%-5% of your take-home pay.
7. What if I have money left over?
You can either a) put that money towards next month’s cash envelopes template or b) use that money towards savings, debt, or treating yourself.
But if you have debt, then I recommend putting most of the extra money towards debt. Then you can give yourself a small amount to treat yourself with.
And if you find yourself regularly using less in one envelope, then you can start budgeting less for that category.
8. What about the things that I use auto-pay for?
I’m sure there are several fixed expenses in your budget that you use auto-pay for. That’s completely fine. You don’t have to use cash for things like your cellphone bill or internet bill.
Instead, your envelope system is meant for the areas where you’re tempted to over-spend. Think: grocery shopping, impulse buys, and fun money.
9. Should I use a cash envelope binder?
You don’t have to, but it can make life easier. Switching everything over (including your licenses and other cards) to a cash envelope binder is a great way to have everything in one place.
This Filofax organizer doubles as a cash envelope binder and wallet:
You can hole punch your envelopes and stick them right in. You can also move your license and other cards over and use the organizer as your main wallet.
10. I’m paid weekly and my partner is paid biweekly. How can we make this work?
Great question. This takes a little extra effort upfront, but it’s easy once you get used to it.
So let’s say you’ve budgeted $150 for gas this month. You get paid every week (4 monthly checks) and your partner gets paid every 2 weeks (2 monthly checks).
Your best option is to withdraw money from your ATM every time a paycheck hits.
It might be easier to withdraw more money on the weeks where both of you get paid and less money on the single paycheck weeks.
Here’s an example of that:
You can try both and see which one works for you.
11. I have a fixed income but my partner’s income is irregular. What do we do?
You’ve heard me say this before, but it all starts with your budget.
If a part of your income is irregular, then you have 2 options:
Option A: Take a monthly average of the last year
Option B: Find the lowest paystub and budget using that amount
When it comes to your expenses, you’ll use your expenses number as your baseline. This means you’ll save money from the higher income months to cover the lower income months.
Then you can add your irregular income with your fixed income and budget using that amount.
12. What are the pros/cons of the envelope system?
Can you really save money just by switching to cash? And why is this method so powerful, anyway?
Here’s why cash envelope budgeting works:
Pro 1 – What you have is what you can spend.
Unlike plastic, your cash can’t give you an endless amount of purchasing power. So you’ll be more aware of what you’re spending your money on and less tempted by impulses.
Pro 2 – It makes a psychological difference
Think about it. There’s a psychological component behind using cash. Swiping a card doesn’t sink in the same way that using cash envelopes templates do.
Pro 3 – You learn so much about your spending habits
And I can promise it’ll surprise you. Cash automatically helps you stop spending money on unnecessary things.
Con 1 – You’ll have to be extra secure
Which I’m sure you are anyway. Don’t leave your cash or belongings laying around. And you don’t have to carry all your envelopes at once.
Con 2 – You won’t get credit card points
Some people see this as a con, so I knew I had to include it.
But here’s the deal:
The average credit card offers 3% cashback.
The average cash spender saves 12%-18% more money than people who use cards.
Using a cash envelope system is like giving yourself cash back because you’re saving 12%-18% more money. That’s more than triple what you’d earn from a credit card.
And secondly, if you carry a balance on your credit card each month, then your credit card rewards and perks are being eaten up by interest charges.
So you’re not earning any extra money – you’re losing it.
13. What do I need to get started?
The great news is starting a cash envelope system is inexpensive, and any money you spend getting set up will easily pay for itself in the first week.
I recommend 4 things:
1. A set of cash envelopes
2. Hammermill paper from Amazon
3. An extra-strength glue stick from Amazon