cash envelopes.

Brett and I have always been somewhat responsible with our money.

Neither one of us spends excessively. We transfer a set amount of money into four different savings accounts each week, and every Sunday we give 10% back to God because we believe what He says in Malachi 3:10. I shop the clearance racks and find plenty of treasures at our local thrift stores, and we always use promo codes when purchasing items online. I know it’s not okay to spend $200 at Nordstrom unless it’s an emergency—like a really really REALLY bad day.

To be honest, money has never been an issue in our home and until recently, we didn’t even talk about it that much. The few arguments we’ve had about money in almost five years of marriage have typically consisted of me fighting for vacations that Brett didn’t think were necessary. Let it be known: I will always consider vacations and quality family time as a necessary expense. Always. I would rather switch to store bought hair dye and never get an eyebrow wax again if it meant we could travel someplace beautiful.

As you may recall, last October I quit my full-time job to start my own business of sorts, which will allow me to stay at home with our son—undoubtedly the greatest expense (and greatest blessing!) we’ve ever known. Four months into my new gig and nine weeks away from our due date, money is suddenly an ongoing conversation in this household.

It’s a good thing, actually.

You see, while Brett and I have always been semi responsible with our money, we weren’t really adhering to a strict budget. Our budget was a mutual unspoken agreement—we each silently trusted that the other would not spend excessively or blow our savings at a casino. Some people might cringe at that system (or lack thereof), but for the six years that we’ve had a combined checking account, it’s worked out okay for us. God has blessed us both with jobs that have provided means to keep food on the table, clothes on our backs, and the occasional luxury like a new car or trip to Greece.

However, with my income recently slashed in half and a baby on the way, that system is no longer working for us. It was time to get serious about money, and make a REAL budget. Brett and I sat down one afternoon with a giant blank spreadsheet and started plugging in the numbers. We subtracted all of our monthly bills, expenses, tithes and savings from our combined income and were left with a pretty startling number. Eight dollars to be exact. Once we finished the calculation I turned to Brett and asked excitedly, “What should we spend our leftover money on?” He smiled. Sadly, eight dollars is not enough to pay for cable, and poor Brett still doesn’t have access to the Sharks games.

After coming to the realization that Brett and I are essentially spending exactly what we make each month, we decided to really start paying attention to where we were spending money, and looking for ways to cut back.

Enter: the cash envelope system. My friend Alli and her husband started doing this a while back, and raved about it. The premise is that you take out a set amount of cash each month, divide it into appropriately labeled envelopes (groceries, date nights, gifts, household, etc), and only spend that much. When the money’s gone, it’s gone. You have to wait for next month, put it back, or call and beg for a debit card approval.

We had three reasons for switching to the cash envelope method;

1) It would hold us accountable to our monthly budget for each category.
2) It would help us become more conscious of our spending (wanting something vs. needing something).
3) It would stop the $2 and $3 charges on our debit card, which would in turn, make our bank statements much cleaner and easier to read every month.

March is our first month doing this, and so far, it’s going well. Grocery shopping is more efficient because we only buy exactly what we need for the week. Brett is bringing his lunch two days a week, and eating out three days instead of five. I’ve caught myself putting things back at Target that I don’t necessary need (damn you, $12 clearance shoes).

After two or three months, we will reevaluate and see if we need to make adjustments to any categories. And of course, starting in May we’ll probably need a whole envelope dedicated to diapers. Yikes.

Have you ever tried cash envelopes? Any budgeting advice for a budget newbie?

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51 Responses to cash envelopes.

  1. Allie says:

    We do the envelope system too! We’ll be debt free in May and it’s really kept us on track. It prevents you from saying, “oh I can just replenish that amount from savings later.” Boy does it hurt when you hand over a large chunk of cash….so different than when you swipe your card! Good luck with everything and thanks for sharing!

  2. erin (aka bows & sparrows) says:

    This is a very inspiring post. I may have to adopt a similar system as I spend far too much on eating out and other frivolous things. Time to get serious!

  3. Alli Moore says:

    Ah, thanks for the mention! I have to give credit to my friend Katie. We’re going on our third month living on cash and I have to say we still love it for a few reasons! 1) You spend differently when you have cash – we evaluate purchases and you can see, touch and feel your dollar bills 2) It’s fun when you don’t spend all the money in one month and your envelopes start to grow 3) We love not seeing the $1.90 coffees on our statements.

    Overall, it’s been working for us and we feel like all of our money is going where it needs to go instead of living pay check to pay check and not realizing how we got to $0 every month.

    Things we’ve learned: 1. Make sure to get your cash RIGHT after you get paid otherwise the math gets tricky as you start to use your debit card 2. Make sure to take out cash when you’ve made plans and need the money (BEFORE you leave in the morning). We also found it useful t0 leave $20 in your wallet for that spontaneous trip the grocery store.

    Good luck friends!

    • Ashlee says:

      Thanks again for sharing, and for sending us the spreadsheet template! And yes, we are learning all those same things, specifically taking out cash BEFORE you leave the house :)

  4. Hey Ashley,

    I’m a fellow Sacramento gal and found your blog through Liz @ Explore. Dream. Discover. Nearly two years ago I moved to Amsterdam (hence my connection with Liz!) where my boyfriend and I now live and work. Fortunately/Unfortunately money was never really an issue for us when we were both single… but now that we split rent, groceries, utilities and travel expenses down the middle we are both learning some difficult lessons about budgeting and being considerate of our “other half”.

    We have the cash budget concept for groceries only… we set aside 400EUR, so 100EUR a week for groceries, which is meant to cover breakfast, lunch and dinner. Twice a week we will probably eat lunch out with coworkers, but then that comes out of our own accounts, not the ‘Grocery Money’.

    This system works out well and it seemed to solve our biggest expense outside of living costs which was food… we are more careful about eating out because it can get SO expensive in Europe. I miss the luxury of quality, albeit affordable, meals of my hometown!

    Good luck!

    xo
    Jeanelle
    Jeanelle @ GlocalGirl´s last blog post ..Paris: Highlights

    • Ashlee says:

      What a glamorous life you’re living! Liz’s photos of Amsterdam are ridiculous. I hope to visit someday. We also set aside $100 for groceries each week but I bet that’s a lot more challenging in Europe. I think if and when we revert back to debit cards, we’ll still use cash for food. It seems to be the only expense that gets out of control quickly.

  5. Britty says:

    We’ve been doing the cash system for a long time. It’s always, always worked for us! Alli’s tips above are perfect. Best of luck. Now… I think living room yoga may be in order. ;)
    Britty´s last blog post ..SCENES FROM OUR WEEKEND

  6. Laura Doyle says:

    We used the envelope method for a few years back when we were both in grad school and it worked really well for us. We did it about 18 months and then when we felt we had a handle on things, went back to using our debit card.

    A big money tip for us is that we both have ‘fun money’ (it was one of the envelopes) each month that is cash we can spend however, whenever. Mine always lasts much longer than John’s ;)

    If you want to save money on diapers (in the long run)…. I strongly recommend considering cloth. Ellie is 14 months old and currently averages about 8 diapers/day. It was more in the beginning. The disposable diapers we use (when she has diaper rash or we are late on washing diapers) cost $0.25 each = $2.00/day. = $854 for 14 months. In reality, it would probably be closer to $1000. We have purchased about $300 worth of cloth diapers instead for a savings of about $700. We also use cloth wipes which saves money. I would be happy to be a resource if you’d like to try cloth! I even have a few of E’s small diapers you could borrow to try it out before committing.

    • Ashlee says:

      Oh Laura. Bravo to you for using cloth diapers. Bravo to ALL men and women using cloth diapers for their babies. I don’t know if it’s for us (at this time) but if that ever changes, I will consider you my go-to expert!

      We also have “fun money” envelopes that we can use for whatever we want. I have a feeling Brett’s will last longer….he never buys anything! Maybe he’ll buy me a gift with his fun money… :)

      • Laura Doyle says:

        Yeah, cloth diapering is not for everyone, but it is easier than it sounds/appears and not nearly as gross as I thought it would be.
        Laura Doyle´s last blog post ..Movie Night

        • Ashlee says:

          That’s reassuring!

          • jen says:

            Totally have to agree with Laura on the cloth diapering thing. We’ve been using Fuzzi Bunz cloth diapers since K was 1 month old (and he could fit into them nicely) and now, at 20 months, we’re still using them (although we’re in the midst of potty training). It has saved us beaucoup money on the diapering front. The only time we use disposables is at night (1 diaper a day) and when we travel.

            It really isn’t that gross, either! :) The only downside is that sometimes, buying cloth diapers can become an addiction! :)

            Good luck on your budget!
            jen´s last blog post ..Bad Blogger, Great Movie Watcher

  7. Jo(ke) says:

    We are getting married in less than 4 months and are doing this already! Budgeting is a necessary evil. It confronts you with reality. Instead of envelopes we use jars but it’s the same system. In the beginning of the month we sit down together and put everything in a spreadsheet. Good luck to you!

  8. Being married for so many years and being home with the kids, I am even more thrifty about what we buy. We don’t do envelopes but we do have a speadsheet of bills, and goals to get rid of debt. I should do this more with date night/sitter etc.
    Julie@my5monkeys´s last blog post ..IMM-Vlog

  9. Ruth says:

    I actually put all of my expenditures as a separate calendar in google. As a visual person, seeing how much I’ve spent and actually logging in makes a difference for me. I keep 2 envelopes… one for cash gifts received that goes towards travel/weekend getaways and another where i keep $5 bills that i get as change (or that i sneak from dave’s wallet) to use as treat money.
    Ruth´s last blog post ..hipcooks west.

  10. Sophie says:

    I’ve always been overly-conscience about money, which I get from my dad. However, I am of the firm mindset that being responsible with your money also means treating yourself a bit. I work hard, and it’s nice to be able to reward myself. I just always make sure to do it in the sale section!

    I love my morning cup of coffee, and I hate the Keurig at the office and taking my coffee on the subway (I just can’t handle my coffee mug, book, gym bag and standing up!). But, my habit was getting a bit out of control. Now, I fill up my starbucks card with a set amount of money each month and when its gone, I begrudgingly head to the Keurig. No one to blame but myself on that one!

    I also found that when you’re beginning a budget, it helps to write down EVERYTHING that you spend money on. That way, at the end of the month, you can look back and see what you bought that you didn’t need and how you can shuffle things around a bit.

    Definitely going to try the envelope method!!
    Sophie´s last blog post ..tunes

  11. Angeline says:

    Girl, you are talking right to me here. We don’t really “believe in” budgets in our household, and my transition to freelance had no impact on our budget (we traded my income + his student income for his new job income…literally zero difference from before). Nothing like a huge life transition to jump into action, though! I really like the idea of sitting down and actually calculating leftover savings/fun money, though…it will either make me feel worse (like we should save more) or better (since I have no idea how much we’re saving right now).

    We do use mint.com to track our general ins and outs, though. It helps a little. I’m super interested in seeing how the envelope system works for you…we have a few friends that use it to help them as they pay off debt, and I think it works for them (to be honest, I’ve never asked!).
    Angeline´s last blog post ..Relationship and career: Not that incompatible

    • Ashlee says:

      We use mint.com too but I find that it’s not that accurate! It always categorizes things wrong and then ends up being a chore to fix it. Funny example: it categorized our mortgage as a food expense last month. WHAT?

      I’ll keep you posted on our progress. Or lack thereof.

      • Angeline says:

        YES! It does that to us, too, but I partially blame the companies, because sometimes the name is terribly confusing. It never recognizes our rent, either. It’s also a hassle to split up receipts (although it is a nice feature), since most of my Target trips include grocery, home supplies, gifts, office, and clothing. How do you deal with multi-purpose receipts?
        Angeline´s last blog post ..Executive Summary | Links for your weekend | 03.16.12

  12. SushiMama says:

    We just started with envelopes this month, but I’ll admit, so far, we’re only doing it with our eating out money. But, eating out is where we’re the worst at going over, so it’s a start. We’re also planning on doing cloth, the biggest reason being to save $. You can see what we’re choosing to use, and why, in this post: http://www.mamaneedssushi.com/2012/01/cloth-diaper-post-holler_21.html

    But, we’re not experts by any means!
    SushiMama´s last blog post ..Packing my bags

  13. Bridget says:

    Love this post! I did the envelope system in college and it helped me to get out without any student loans. I’ve never thought of using it for just a few “problem” categories before, but we could totally use that for Starbucks and eating out. Also, I wanted to jump on the you should use cloth bandwagon. We have a four month old and love our cloth diapers and wipes. And this is coming from someone who is a self proclaimed laundry hater. If you do decide to go that direction, I’d be happy to help.

  14. We started doing Financial Peace University with a small group in our church about a month ago, and so far it’s been really awesome. We’ve been doing cash envelopes as well, and it’s made a huge difference in the way we spend money. Paying with cash helps solidify in your mind that you’re actually letting go of money that could be spent elsewhere. Swiping cards just doesn’t have the same effect.
    So far, the envelopes help a lot when it comes to budgeting, and we’re hoping to be debt free by next year, using Dave Ramsey’s debt snowball method. The freedom that comes with paying off debt is just so nice.
    It’s funny, we talk about the envelopes so often with each other that our friends and co-workers find themselves asking “do you guys have an envelope for that?” if we talk about buying something. Guess it’s working!

  15. Amanda T says:

    Love this! I can so relate to this! About a year ago, we decided to forgo our debit cards and switch to the cash (not envelope but similar idea) method. It’s been the best move ever! I was a “chronic swiper” – $3 Starbucks here and $20 Target there. We went into the bank and now have good old-fashioned ATM-only debit cards, without the Visa/Mastercard logo. I have a credit card I can use in case of an emergency but otherwise, everything is with cash that we pull out periodically from the ATM. It can be a pain having to hit up the ATM more frequently but it’s definitely been worth it. My online bank account is so easy to follow and all our bills are paid through BillPay. I’ve ironically found that it’s MUCH harder to part with cold, hard, fresh cash in my hand. ;-) We tried Mint.Com and found that it was too much of a pain to organize and wasn’t as accurate as we’d hoped. I kick myself for not having started sooner! I think it’s a fabulous concept. Happy budgeting!

  16. Suzy Marie says:

    As somebody who likes to be meticulously organised, yet somebody who is terrible with money, this system absolutely screams out to me. I hate that bits of money go ‘missing’ because change gets spent on nothing type things. This envelope system is great because all those bits of shrapnel can go back in the envelope towards spending on sensible things. Also, spending money on a debit/credit card is so much easier than parting with cash, so having cash out stops reckless spending I suppose. Maybe I’ll have to switch! Glad it’s working for you :)
    Suzy Marie´s last blog post ..Stumblings

  17. Since I quite my job we’ve had to be more careful with money too. Boo. Haha. I’m glad the envelope system is working for you guys! We might have to try it in the near future.
    jennifer blair´s last blog post ..Message In a Bottle | The Story

  18. i just loved this post and appreciated your candidness about the topic. perhaps we’ll try the envelope method too… :)
    shaina longstreet´s last blog post ..taking a little break

  19. Kellie says:

    Love, love, love Dave Ramsey’s financial planning!! His radio show is great too, especially when you listen to the people screaming that they are debt free on Fridays. Chris and I unfortunately haven’t been as lucky as Brett and you in the whole ‘not fighting about money’ department. But following Dave’s steps has really set us on the right track. We haven’t tried the envelope system, probably partially because it’s extremely daunting! But your willingness to jump on in inspires me! As always, girl! :)
    Kellie´s last blog post ..Willing Spring On

  20. Sarabell says:

    It’s funny, but my parents never discussed money with my brother and I. They felt like their finances just weren’t something we needed to be privy to, so when I moved out at 18 I was on my own. I immediately started a cash envelope system for myself and have been sticking to it since day one. I never really realized it wasn’t he way everyone did their money until I got married!
    Sarabell´s last blog post ..Iron Springs Cafe

  21. Michelle says:

    That’s the system my inlaws have. My husband and I have had a joint checking and savings account since we lived together and just opened a joint IRA savings so we can move money aside that is much harder to touch or access, therefore it really STAYs in savings. This has been working so far, except he is more frugal and I am more of an impulsive shopper, so we do have our disagreements about money from time to time, but so far it works. Good luck!
    Michelle´s last blog post ..If I Went To…New York City

  22. Holly says:

    I follow a blog (http://sara-szatmary.blogspot.com/) & Sara uses the cash envelope system – the amount of money that she reports she saves is incredible. She”s definitely perked my interest in trying out the cash envelope system! Hope it works for you & Brett!
    Holly´s last blog post ..My Insta-weekend

  23. Natalie says:

    This has gotten me so intrigued! Between our wedding this September and pending the purchase of our first home {as of yesterday!} I have really become aware of every dollar we are spending. Like you and Brett, we don’t spend extravagantly, but also don’t have set budgets. This has really inspired me to sit down and really map out where our money is going, and how to be budgeting. Thanks!

  24. Lottie says:

    We are moving to a bigger place which means more money in rent, so we had a very similar conversation recently. And we worked it all out and I felt so much better, like we weren’t stretching really far and it was just a little adjustment that had become a much bigger thing in my head–but I am still a little nervous and apprehensive until we move in and get used to it, we just have it too easy where we live now. :)
    Lottie´s last blog post ..The best coffee I have ever had

  25. Kat says:

    I love this idea – it is just what I was looking for right now. I am about to start a new job and want to get some money in savings but with a debit card it is SO EASY to just make impulse purchases! This idea is perfect! Thank you!

  26. Ana says:

    That’s a good idea. I don’t know if my husband would agree on using cash instead of the debit card though. But I’ll talk to him about that.

    Thanks for sharing :)

  27. Meagan says:

    I do this with the tips I make at work and I love it! Great post. :)
    Meagan´s last blog post ..thedaintysquid:(via The Dainty Squid: More Squirrels!)

  28. Faith says:

    We’ve been hearing good things about the envelope system, too! Since we got married 10 months ago, we have also been operating on the “trust budget” that you talked about. It’s allowed us to overspend, slowly but surely, on things like extra groceries, thrifted clothes, coffee drinks, and snacks from convenience stores when we’re out and about. We just might have to try this cash system! We’re also thinking about using pre-loaded gift cards for our college/workplace cafeterias.
    Faith´s last blog post ..three blogs I love

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  31. kelsey says:

    eric and i became debt-free 2.5 years ago after taking Financial Peace University. it is so awesome, we did it twice. we use cash envelopes for four categories now: food (groceries and eating out), hair care, date night and toiletries. we get $100 week for food, $20 for toiletries, $10 for date night and $5 for hair. how is it working for you so far?
    kelsey´s last blog post ..Advice for Engaged Couples

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