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Mastering the Cash Envelope System

Mastering the Cash Envelope System

Do you run out of money before the end of the month? Or overspend on specific areas of your budget? If this sounds familiar, then the cash envelope system may be the solution you’re looking for.

What is the Cash Envelope System?

The cash envelope system is a budgeting method and way of tracking your money. Depending on how you implement the system, it may also be a way to do zero-based budgeting.

Although Dave Ramsey has popularized the cash envelope method, he is not the creator of it. It has been around for years. And Canadian Gail Voz-Oxlade popularized a similar approach with her cash jars.

The cash envelope system is a tool to help prevent overspending and works best if your discretionary spending is in cash.

Implementing the System in 4 Easy Steps

1 – Determine What Budget Categories Need an Envelope

Not every budget category needs an envelope. If you are starting, keep things simple. Start with one or two cash envelopes for the categories that you struggle with the most.

2 – Figure Out Your Budget Numbers

To figure out your budget numbers, you may find it useful to track your expenses for a few months. Or to analyze your expenses for the previous few months.

You are trying to get an idea of how much money you should allocate to each category. If you are starting, this step may be difficult and a moving target. It’s okay to readjust your numbers every month until you have found what works for you.

3 – Separate Your Funds and Create/Label Your Category Envelopes

Withdraw the appropriate amount of cash from your bank account. Divide it by spending category and place it in an envelope. You may choose to be creative here and make your cash envelopes. Or you can label plain white ones. It’s your choice.

You can decide to fill your cash envelopes monthly, weekly, or every time you receive a paycheque.

There is no wrong answer.

4 – Spend the Money in Each Envelope on Items in the Appropriate Category

Every time you go to the store, make your purchase from the cash envelopes. Just make sure not to overspend or “steal” money from another envelope. Hopefully, this method helps you keep your spending in check. And that you have money left over at the end of the month.


The system is tangible and visual. You can hold the cash in your hand and have to spend it each time you make a purchase. There is a level of discomfort with cash spending you don’t feel when you tap your debit or credit cards. The cash envelopes are also a visual reminder of what you are trying to achieve with your budget and finances.

It’s easy to track your money. You don’t need lots of spreadsheets or complex calculations. Once you have determined your numbers, all you need to do is withdraw the cash and keep it in the appropriate envelope. As you spend money from each envelope, less is available to spend in the future. The money is tangible and easy to track.

There are no overdraft charges. With you in control of how much money you withdraw from your account, there is no possibility of overdraft charges. By making a budget and sticking to it, you keep more of your money and give less to the banks.

Cash is king in an extreme emergency. With any budget, you should have an emergency fund. But the cash envelope system provides an added buffer in an extreme emergency. If you are ever in a situation where cash is required (for example, if the banking systems were to crash or your credit card was compromised), you would have money available in your envelopes. When very few people have cash at home any more, the envelopes can provide you with an advantage.

It becomes difficult to overspend. If there is no money in an envelope, there is no money to spend. There is a physical representation (cash) of how much there is to spend. This is different from spending on debit or credit cards when the amount available is less readily known.

The system enforces discipline. The envelopes are a constant reminder of how much money you have (and have left) in each budget category. As long as you stick to the envelopes’ cash amounts, it becomes easier and more comfortable to follow the plan.


It might be challenging to get your spouse, partner, or family on board. If your family is used to spending money at will or buying everything with a credit or debit card, getting them on board with the cash envelope method may take some time. See the tips below for some helpful hints to ease this transition.

You have to go to the bank or ATM to withdraw cash. If you are adopting the cash envelope system, you will need cash. This can be an inconvenience, so make sure to plan accordingly. Or try one of the “virtual envelope options” listed at the end of this article.

There is a learning curve to get started. It may take you a few months to get your numbers right. Although the concept is relatively simple, how you adopt it may take some time. In the beginning, you may get it wrong sometimes, and that’s okay. Just keep with it and keep adapting it to fit your needs.

There are no credit card rewards. When you use the system in its most accurate form, all of your discretionary spending is in cash. This eliminates any credit card rewards you may earn on your purchases. But it also removes any credit card annual fee you may have been paying to “earn” those rewards.

Being organized is a must. There is a high level of organization and planning required to make the system work. Not only will you need to be organized with your budget categories, but you will also want to make sure you have the correct envelope with you when you are shopping.

It requires discipline. Nothing is stopping you from taking money from any envelope and spending it on whatever you want. But my guess is, if you’re thinking about adopting the cash envelope system, that you’re ready to budget and take control of your finances.

13 Tips for Getting the Most Out of the Cash Envelope System

When using the cash envelope method, remember to keep things simple. The simpler your plan is, the easier it will be to stick with. Here are 13 tips to help you keep it simple and get the most out of the system.

  • Carry only what you need (either the specific amount of cash or envelope).
  • Leave your debit and credit card at home (if you don’t have them, you can’t use them).
  • Keep different bill denominations in each envelope.
  • Start with 1-2 categories (try the categories you struggle with first).
  • Make a plan for unavoidable online purchases.
  • Keep a bit of a cash cushion in your chequing account.
  • You may not need envelopes for categories you don’t overspend on.
  • Adjust as needed.
  • Find a timing to withdraw the cash that works for you (monthly, weekly, every paycheque).
  • By decreasing your bills, you will have more money for discretionary expenses.
  • Determine your “what happens if…” rules in advance.
  • Have a goal (pay down debt, invest, save) – put any extra money towards that goal.
  • Be patient and stick with it.


What if I Run Out of Money in an Envelope?

If you run out of money for a category, it can be very tempting to want to “borrow” some from another envelope. Don’t. If you find yourself running short in an envelope one month, find a way to make do until the end of the month.

Get creative. If it’s your food budget that’s short, can you make some new meals from the food you have in your cupboard or freezer? If your gas/transportation budget is short, can you carpool with a colleague to work?

What if I Spend All My Cash?

It is always a good idea to have a bit of a buffer. If you spend all of your cash, this is where a miscellaneous envelope can help. You can also have peace of mind knowing that your bills and fixed costs have already been taken care of—no worries about having your heat or power shut off.

And if you are just getting started and have to dip into your savings, give yourself some grace. It may take some time to adapt your spending habits. Make a realistic plan to improve next month.

What if I Do Everything Online?

You can still use the cash envelope system if you do everything online. It just isn’t always ideal and may take you a bit more work to implement.

You can create multiple accounts like you would envelopes. Just make sure you are working with a bank that offers free accounts. No money system should add extra bank charges to your budget.

Then track all of your credit and debit card expenses on each envelope. At the beginning of the month, write the category totals on each envelope. And deduct from them as you spend.

What About Emergencies?

If you run into an emergency, it’s time for a budget meeting with your partner/spouse/accountability partner. Discuss the emergency and make sure that you are on the same page on dealing with it.

Remember to be flexible. If it truly is an emergency, it would have been challenging to plan for.

What if There Is Money Left Over at the End of the Month?

Congratulations are in order if you have money left over at the end of the month.

Take some time to reward yourself – ideally with something that doesn’t cost a lot of money. It’s important to celebrate the little wins along the way to help keep yourself motivated.

You then have two options, you can roll the money into next month’s envelopes, or you can re-allocate the money in your budget to your overall money goal (debt repayment, investing, saving, etc.).

Cash Envelope-Like Apps

One of the major downsides of the cash envelope system in its physical form is the amount of cash you need to access every month. An alternative to this is to use a budgeting app to track your spending instead.

Here are three apps that use virtual envelopes; no need to visit a bank or ATM.


Goodbudget is an app designed as a replacement for the physical cash envelope method.

With the app, you can create multiple virtual envelopes, and it syncs with multiple devices. When you spend money from a virtual envelope, whoever you share the account with will instantly see that on their app too.

Goodbudget has 2 pricing tiers. Their free forever plan includes 20 envelopes, 1 account, 2 devices, 1-year spending history, and community support. And if you want to pay $60 a year for their upgraded plan, you will get unlimited envelopes, unlimited accounts, 5 devices, 7-year spending history, and email support.


YNAB, or You Need A Budget, was created over 15 years ago. The premise of the app is to give every dollar a job (similar to zero-based budgeting).

You can automatically sync YNAB to your bank accounts. Or you can input your information manually if that is more your thing. Just like other budgeting apps, you can share the data across multiple devices.

The price tag for YNAB is $84 a year. But the average user saves more than $600 in the first 2 months. You can also sign up for a free 34-day trial to test out if YNAB is for you.


Mvelopes is a virtual envelope budgeting system. Like YNAB, the app lets you give every dollar a purpose.

There are 3 pricing tiers to choose from, depending on your needs, with the highest price point (Plus plan for $19.97/month) offering a personal coach to work with, quarterly coaching, and a personal financial plan.

If that sounds like more than you need, Mvelopes also offers a Basic plan for $5.97/month, including automatic syncing to your bank account and across devices and unlimited envelopes and accounts.

And the final plan is their Premier plan. For $9.97/month, you get everything the Basic plan offers, plus initial setup assistance and access to their learning and debt reduction centers.

All of the apps listed above come with a monthly or annual fee, but that price is often offset by how much money they help you save. They also have a significant advantage over physical envelopes in that they all have some form of visual tracking that includes charts and graphs.

Whichever way you choose to go (virtual or physical envelopes), the key to any budget or cash envelope system is sticking to the plan. Feel free to experiment until you find the method that works best for you.


  1. Michael Bryden

    Hmmm, the Federal Government has been budgeting with an envelope system for decades, and look what a mess they are in! Fortunately, Canadian citizens don’t have the ability to print more money, borrow excessive amounts of money effectively mortgaging future generations, or tax others although our Canucklehead governments are doing a fine job of redistributing from the ‘haves’ to the ‘have nots’!! In addition to the provided advice, there should also be two savings envelopes, one for long term savings going to registered account(s), and a second for emergencies but with strict rules to access (e.g., build up to 4-6 months salary…remember Covid eh). In addition, try to estimate your annual expenses for each envelop and allocate an average amount because not all expenses occur in a regular monthly manner, as some are seasonal and/or at intervals. Take care, be safe, and enjoy!

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