Envelope Budgeting – Cash is King

Envelope Budgeting Cash is King

For my first post…a boring financial post!  How exciting!

Pretty much any personal finance advice starts with one piece of advice:  you need a budget!  For most people, a budget is pretty easy to put together.  You have a pretty predictable income, and a predictable set of bills.  The hardest part to plan for are your variable expenses – groceries, entertainment, pets, shopping, etc.

Over the years, we’ve tried many different ways to track and stick to our budget.  We’ve saved receipts, balanced checkbooks, and even used tools like Quicken or Mint.  Through all of these systems, we’ve noticed two major problems with budgets for our variable expenses.

  • Time Consuming: It takes a good amount of time to tally up reciepts, balance and categorize spending in a checkbook, or to enter all spending into a program.
  • Allow Overspending:  if you haven’t balanced your checkbook or entered all of your transactions, you may have no idea how much you’ve spent/have left to spend.  This makes it very easy to overspend in a category using a debit/credit card.

Our newest solution: envelopes of cash for each spending category.  We started with a bank envelope with “Groceries” or “Pets” written on the outside, and withdrew cash at the beginning of the month for each spending category, putting the cash in the envelope.  This solves both problems we’ve had before – you know exactly how much you have left to spend, and it’s physically impossible to overspend in any category by accident.  If an envelope is empty before the end of the month, you need to either make do, adjust the budget amounts, or borrow from another envelope.

It’s taken us a little while and a few adjustments to our budget amounts, but we’ve really embraced the envelope system.  This past month, our dog Lucy had an emergency vet visit (~$500, ouch!).  She’s fine, and so is our budget – our pet envelope had enough in it to cover the cost of the visit.

This budget system is also a great way to balance responsibility across family members.  I manage our fixed expenses/bills, and Dory manages our envelopes.  When we were using some of the other systems, I was responsible for managing our entire budget.  That put me in the position where I had to say “No” to things that we both wanted to do – I felt like the bad guy all the time.  Now we’re on the same page with spending, and know what we can afford to do before we decide.

With any budgeting, the challenge is being specific enough without having too many categories that make it difficult to manage.  Our current envelopes are:

  • Food: Groceries, Dinners out, and general household supplies
  • Entertainment: Anything fun together
  • Home: Improvements, decorations, etc.
  • Pets: Pet food, toys, and vet visits

All of our other bills and expenses are pretty fixed or consistent (water/electric bills), and we pay online.

The system may not be perfect, and definitely has some risks (what if you lose an envelope?), but it definitely is working for us.  I’m sure that over time, our envelopes may change and the amounts definitely will, but our system is pretty much humming along for now!  I’d definitely recommend an envelope system to anyone and everyone.

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  1. Hi there, just wanted to say, I will keep this article. It was helpful. Keep on posting!

  2. We use the same system and it has worked so well for us. The only debt we have is our car and our house. We have been renovating out 65 year old house using cash and have managed to do it for a fraction of what most people spend! We have done everything but the bedrooms and one bathroom for less than $2000. That includes the kitchen (which still needs a countertop, but since we want to get granite, we have to wait until we have saved the cash), for which most people spend at least $10,000. Our kitchen reno cost about $500. We lay the tile floor ourselves, bought tile on clearance, and did all our own labor for painting and refinishing the cabinets.

    • Isn’t it an amazing feeling to pay for big items in cash? There is something so rewarding about paying for items up front and having them be 100% yours! I can’t wait to see pictures of before and afters of the house! By the way, I’m jealous that you get to go granite shopping. That was my favorite part of the kitchen remodel. I would get granite in every room in my house, if I could… just so I could have my home filled with pretty granite patterns.


  1. […] Tim has mentioned in his debut post, we are working at being thrifty and staying on a budget. This is easier said than done, as one of […]

  2. […] and Dory’s student loans) and to saving some money.  In order to help accomplish our goals, we switched to a cash envelope system, using cash to pay for most of our expenses (outside of mortgage, utilities, […]

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