5 Easy Steps to use the Cash Envelope System to Gain Control of Your Finances

5 Easy Steps to use the Cash Envelope System to Gain Control of Your Finances

Do you get to the end of every month and wonder where all your money went? Do you fight with your spouse about your finances? I used to too before I started the cash envelope system. I went from living paycheck to paycheck and being in debt over $20,000 to being completely debt free and to being able to save $1,000 every month which I am putting in savings and investments to fund my dream of early retirement. You can do it too! Read on to discover how to start the cash envelop system in 5 easy steps to finally gain control of your finances.

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What is the cash envelope system and how can it help you achieve your Financial Dreams?

The cash envelope system is a method of tracking your spending by separating your expenses into small categories and placing cash in an envelope for each category. The amount of cash that you put in each week is based on the budget that you have developed. When you are out of cash in that envelope for the week you cannot spend any more money in that category. Therefore, you always stay within your budget and you know where all your money is going.

Dave Ramsey writes about the cash envelope system in his book, The Total Money Makeover. This book is what inspired us to start this system and get our finances in order.

Read on to discover the 5 easy steps to implement this system and gain control of your financial future.


Budget, Spending Plan
Increase your Chance of Achieving your Financial Goals by up to 80%

Studies have shown that those who write their goals and refer to them regularly are 80% more likely to achieve their goals than those who do not write them down. This is the first step and the most fun. What is driving you to save? Do you want to pay off all your debt, save for your kid’s college, buy or house or take the family on a trip to Hawaii?

  • Write down both short term and long-term goals.
  • Envision what you want your life to look like when you have your finances in order.
  • Imagine how it will feel to reach all your goals.
  • Get focused about your goals and it will motivate you to stick with your plan.

I track my goals in my bullet journal and look at them every day.

Related Article: 9 Ways Bullet Journaling Can Improve Your Life

How to Create Categories to Increase your Chance of Success

Think of the basic categories of your spending. Write them down in a journal or an excel spreadsheet. Don’t worry you can add or subtract these later.

The basics to get you started are:

  • home
  • utilities
  • automobiles
  • daycare
  • groceries
  • entertainment
  • restaurants
  • clothing &
  • insurance

Add or subtract depend on what you spend your money on. I might have one for boxed wine and you may have one for high heeled leopard shoes. No judgement.

How to Open your Eyes to your Actual Spending

This step is the hardest, but it is the most important. It is also the most eye-opening part of the entire process. Take the categories that you have selected in the step above and create an Excel Spreadsheet or journal entry broken down by month with each category. Next check your bank account and add up what you are actually spending in each category. Are there certain categories that you are spending way more than you realized? For me this was groceries. I did not realize how much those quick trips to the grocery store for a few items was adding up. In this step you will realize if you need to add or adjust any of your categories.

The Professional way to Create a Budget

This step will make or break your system. If you have taken the time to complete the step above this step will not be as hard as you think. Take an hour and sit down, (if you have a significant other include them in this step) and plan this well. Start with your monthly income and use the categories that you have identified along with your new-found knowledge of your actual spending and make a plan. Plan for every penny, you should have zero left at the end of your month. I am not saying that you should spend every penny of your paycheck. What I mean by this is know where every penny is going, this may be 20% is going into your savings account or 10% is going to pay down debt. The key is to have a purpose for all your money.

Take your budgeting a step further calculate the percentage that you are spending on each category and compare it professional recommendations, (below).

To calculate the percentage, take your monthly expense for each category and divide it by your total monthly expenditures. Compare it to the percentages that experts recommend that you spend on each category. You don’t have to be exactly within the recommendations, but this is a good way to gauge if you are overspending in a certain category. Then decide what things you can pay for with cash and what will be debit or even an automatic withdrawal from your checking account. Write that down in your budget plan.

It’s All About the Envelopes

Gather envelopes for all the categories that you can spend cash on. This system will work with any basic envelopes. But I like to use bright fun envelopes; I need all the motivation I can get to work on my budget. These are the ones I use. It comes with 12 bright fun envelopes. If you have more categories, I recommend these. They come with 24 and they are very cute and colorful as well. Then just take your monthly budget for each cash category and divide it into a weekly budget. This is how much cash you will put in the budget category. Then monthly or weekly depending on your pay schedule go to the bank and get enough cash for your envelopes. Label your envelopes and spend only from the correct category envelope. When your envelope is empty you are done spending in that category until the next week starts.

What do you do if you make an online purchase or use your debit card at the store? If this is the case, simply subtract that amount of cash from that envelope and put this in a separate envelope and label it reconcile. You can either put this cash back in your bank account every month or use it at the start of the next week when replenishing your envelopes.

If you stick to this system you will never have to ask where did all my money go at the end of the month. You will be amazed at how quickly you will start to achieve those financial goals and in no time, you will feel like you have control of your finances. It worked for me and my family. Give it a try and leave a comment to let me know if it worked for your too!

The Total Money Makeover is a great book to learn more detail about the envelop system and give you the tools you need to get your financial house in order. It is also available in an audio book, which is a great way to kill time during your commute.

Have you tried this system or want to? Comment and let us know!

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