K22 Saving Money with Envelopes

Money-Saving Envelopes

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Have you come to the point when overspending is no longer into the game? Are you looking for ways to budget your finances? The answer to your prayers is the money-saving envelopes system. Apart from helping you cut corners and track your expenses, it will teach you discipline.

The greatest strength of the envelope budgeting system is that you’ll learn to curb your exaggerated spending habits. When an envelope is empty, there’s no way you can spend from that category until the next paycheck arrives. Read our extensive guide on saving envelopes to learn the basics and start economizing right away.

What Is The Envelope Money Saving Method?

Saving money envelopes divide your entire income into various spending categories such as bills, groceries, and gas. Before you set off on this financial journey, you must decide how much you’ll spend on each segment. Then, you place that amount in an envelope and dedicate it specifically for, let’s say, groceries.

Most importantly, you can spend only the amount available in the envelope. This way, you prevent yourself from overspending for the month. You may adhere to the same principle without using any cash but advanced software or other financial technology.

Before making any calculations, make sure to read our tips on reducing your utility costs as well as living on $1,000 a month. These will give you a nice advantage for your cash-saving journey.

Step 1. Select Which Categories Need A Cash Envelope                                                                

First, establish your spending categories and set a limit that you cannot cross for each. List the most common expenditures you have throughout any regular month. It is also crucial to combine specific expenses in groups to avoid having too many categories.

Consider the following groups of expenses: groceries, healthcare, bills, gas, pets, kid’s stuff, clothing, and dining out. You may list other categories depending on your preferences and the specific situation. A family with three kids and two pets will certainly have a completely different money structure than a couple.

Moreover, don’t forget to add a savings category and an envelope dedicated to irregular expenses like gifts, taxes, and insurance. Most importantly, the total amount of all money-saving envelopes must never exceed your monthly income.

Step 2. Create Your Financial Budget

It’s time to create your budget and decide how much cash you’ll spend on each category. Let’s assume your bi-monthly paycheck is $1,000. What you must do is distribute the funds for the following two weeks. A simple example can look like this:

  • $200 for groceries,
  • $350 for rent,
  • $100 for gas and auto maintenance,
  • $150 for personal care and apparel,
  • $50 for entertainment,
  • $50 for utilities,
  • $50 for irregular expenses,
  • $50 for savings.

Of course, this is just a standard example, but you can tailor your envelope system to suit your needs. What matters is that you distribute the income to the envelopes the minute you receive it.

Step 3. Label And Fill The Cash Envelopes

Write each category name on the envelope designated for it. You should also write the budgeted amount for that type of expense on the paper. Then allocate the projected funds for each category and stick to the projected spending amounts.

Always ensure you and your spouse are on the same spending page. If you’re single, you might involve a close friend in the strategy to go through this ordeal together. Or, this friend can keep track of whether you’re putting sound money principles into practice.

Step 4. Only Spend From The Assigned Cash Envelopes

Here, the golden rule is that you spend only the money in the envelope and not a dollar more. When an envelope is empty, that’s that. You wait for your next pay stub to replenish. Under no circumstances shall you lend grocery money from the category dedicated to gas. Scavenge your pantry and get creative with cooking to avoid making extra trips to the supermarket.

To make this strategy viable, reassess your past spending needs before defining cash distribution for the following month. You may have to alter some of the categories to suit your needs better and wants next month.

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The only things you need to successfully complete the money saving envelope challenge are dedication, envelopes, and of course, some cash.

What Should You Do With Leftover Money In Cash Envelopes?

Suppose you have money left in an envelope at the end of the month. Well done, you’ve exceeded your expectations! You managed to spend less than the projected budget! That’s one of the best feelings in the world. In short, it’s time to celebrate with reason.

Reward yourself by attending a concert or buying those high heels you always wanted. Alternatively, roll the money over to next month, so you have an extra-large kids’ stuff budget. Rewarding yourself and your family is essential since it keeps you motivated. You must celebrate all the little wins along the way! If you have due obligations, it’s wise to put that extra cash toward your debt snowball.

If you decide to celebrate, however, we recommend you go for one of these cheap entertainment ideas for large families. Saving money shouldn’t be an obligation. It should be a healthy habit.

Remember that cash envelopes are potent weapons in the fight against overspending. They will help you manage your money better than you could ever succeed in before. It’s time you put the envelope system to work and get intentional about how you’re spending your hard-earned cash each month.

Online Payments

If you make many e-payments and do shopping online, a digital envelope budgeting system might do wonders for you. That said, saving money using envelopes may not be useful for settling your bills, insurance, and rent. Hence, it’s much better to pay for these expenses automatically and avoid late payment fees.

One viable option is to open a specific account for online payments and separate these from cash payments. In a way, this is a hybrid method that enables you to use cash for most purchases and debit cards for online payments and shopping.

Alternatively, you can have an envelope for online purchases and jot down anything you buy via the Internet on it. Naturally, it would help if you had a spending threshold to keep track of online payments, too, and never exceed it.

Cashless Envelope Trackers

Thanks to debit and credit cards, e-commerce, and electronic funds transfers, exploiting the envelope budgeting scheme may seem outdated. Fortunately, there is an ideal solution for this, and it involves using financial software. What is more, budgeting software and automatic saving apps can help you maintain the discipline needed for the envelope system.

Goodbudget app offers a shared envelope-budgeting network, but virtually. Multiple devices can enter the app and run the same account with various spending categories. Unlike other apps, users must enter all bank accounts and account balances manually. Only then can you choose and assign different wallets. Note that there is a free and paid version of this cashless financial tracker.

Mint.com is another budget managing tool that tracks all your checking and savings accounts. Plus, you can add as many spending categories as you like, including utility bills, rent, groceries, and clothes. Users can record even the smallest purchase in the system, and it works with almost any IT device.

Last, check out the You Need a Budget app that uses virtual envelopes. One of its most astonishing features is that once your income gets registered, the software assigns a portion to each category. When you purchase something, you tell the app what category to use, and it deducts money automatically from that wallet. The software can also contain a credit card payment envelope in case you want to keep the plastic.

Benefits To Using The Cash Envelope System

The envelope budgeting system has been taken advantage of for ages, and that tells a lot. To demonstrate that this financial strategy really works, we’ve outlined its most significant upsides. The following facts are enough to persuade you to take care of your finances like a pro.

  • No missed payments. The envelope system involves upfront payments, so there’s no need to keep track of due amounts. Simultaneously, you become more disciplined and take responsibility for your obligations on time.
  • You have an emergency fund. Though many people heavily rely on their credit cards, this doesn’t seem right in emergency terms. In short, if an urgent need arises, you instantly run into debt to settle it. With the saving money envelopes, you use the saved cash to cover any medical emergency or car repair.
  • Tangible assets. Credit cards seem to push us to overspend every time we hit the stores. With cash, you’ll get reminded not to splash out on trivial things every time you reach for the envelopes.
  • Forget about overdraft fees. Most of us have been paying ridiculously high charges for overdrafts. With this method, you won’t need to use your credit card, and therefore, you don’t run the risk of crossing the red line.
  • No wasteful purchases. Once you get these saving tactics up and running, you’ll see how wasteful spending becomes scarce. Meaning, envelope budgeting will urge you to think through each purchase and know where every single dollar is going. It’s way easier to spend a fortune when you don’t see the money in your hands.

Disadvantages To The Money Saving Envelope Method

Though benefits prevail, the saving money using envelopes system entails some downsides, too. Still, once you get used to the basics, nothing will stop you from becoming debtless. On top of that, you’ll always manage to have money set aside.

  • You may be confused at the onset. Once you get dedicated to saving with the envelope strategy, you may run across some ambiguities. For instance, which envelope to take money from and how to organize them. Take more time to sort things out, and soon, differentiating between spending categories will come naturally to you.
  • No credit card rewards. Credit cards offer cash back and earn you points for various prizes. Unfortunately, you won’t be seeing any credit card rewards since you will use plastic way less frequently than before.
  • Cash withdrawals are inevitable. The system requires visits to your bank or ATM every once in a while. So, going to the ATM to get the cash may frustrate you if you’re a busy person. Organize your cash withdrawals on your way to work or when you’re going to the supermarket to lose less time.
  • The entire family must get on board. For the whole operation to work, all the family must become fully committed to it. Meaning, everyone at home should stop using plastic and switch to cash. For some family members, this may not be as straightforward as the convenience of swiping credit cards.
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Photo by Karolina Grabowska

By implementing the money saving envelopes method, you can save $5,000 in just six months.

Running Out Of Money In The Cash Envelopes?

Be careful not to take cash from the other cash envelopes. When it comes to this money-saving system, it may be tempting to shuffle banknotes from one category to fund another. For instance, you may have used up all the money in the dining out envelope. Don’t get surprised if an inner voice tells you to open the apparel envelope.

Remember that the ultimate aim of using cash envelopes is to curb your spending habits and help you stay within budget. If you run out of dining out money, eat at home instead of going to restaurants. If your gas money is slipping away faster than projected, limit your trips, or use public transport to work. Find creative ways to make your cash stretch when the piles are getting empty!

What About Emergencies?

If you have run into an emergency in the middle of the month, you may have no choice but shift the envelope funds. In this case, call an emergency budget meeting and discuss the critical situation with your family. If you have collected enough money in your savings envelopes over a more extended period, these funds may suffice.

Alternatively, talk with your spouse and sort out the best course of action. You may have to adjust your budgeting schemes but always agree on such adjustments together. Altering the contents of the money-saving envelopes must be a joint decision. In case you’re single, check the amounts with your accountability partner and ask for an opinion on the matter.

Bottom Line

Using the envelope budgeting system in a technological era like today may seem old-fashioned and obsolete. Even though you may feel like being behind the times, what matters is its functionality. Plus, there’s no way you overspend if you’re out of cash. Indeed, savings are guaranteed if you put the plastic away.

Have you ever used the envelope saving system? What was the outcome? Share your thoughts in the comment section below. For more advice on saving strategies and methods, sign up for our newsletter and never miss our budget-friendly tips.


Do cash envelopes work?

The good old envelope saving method truly works, and you can adjust it to your preferences. On the one hand, you can carry physical cash and distribute it in different envelopes. On the other hand, you can leave the money in your bank account and write the expenses on the envelopes. Whatever your choice, this strategy will help you with overspending and better allocation of income.

How can I save 5000 in 6 months with envelopes?

First, buy 100 inexpensive, saving money envelopes and label each from $1 to $100. Every week over 25 weeks, pick only four envelopes and check out the amount written on them. Whatever the sum says, that’s how much money you’re supposed to insert inside that day. Although the selection is entirely random, at the end of these six months, you’ll have set aside over $5,000. Just ensure you mix up the envelopes well, so you don’t end up saving the minimum or maximum amount per week.

How much money do you save with the 100-envelope challenge?

The 100-envelope challenge is a fun way to set valuable assets aside without compromising your needs. All you need is 100 envelopes and the will to pick two each week and place the required amount of money inside. In 50 weeks, you’ll have exactly $5,050 saved if you keep up with the challenge. In case you want to economize faster, and have the necessary resources, pick a random paper case every day.

Is using cash only a good idea?

When it comes to saving, using cash only is smart to boost your saving potential over a short period. Conversely, cash-oriented spending is not always the safest option as you may be prone to theft, loss, or fraud. Also, ATMs involve fees for cash withdrawals. Last, most of us pay bills or make purchases online, so in this case, cash is not a viable option. Overall, if you use your debit card responsibly, it has proven to be a satisfactory replacement for paper currency.


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    22 thoughts on “Money-Saving Envelopes

    1. Joseph says:

      I like to save some money. I always have some cash for emergency cases. But this system with 100 envelopes is very interesting, I’ll try to use it. Thanks for the tips

    2. Meredith says:

      Saving some money is always a good idea. If you manage to do it. In this crisis most of the families have problems to have enough money to pay all the expenses.

    3. Daniel says:

      Nowadays is a luxury to afford to save some money. These tips may be useful in some normal situation. But currently with people losing their jobs this can not be applied

    4. Marijan says:

      It is a good start to start changing your spending habits with system like this. We all overspend and buy unnecessary things.

    5. Denize says:

      I always spend too much money on make-up which is expensive and branded. I rarely manage to do some savings. Maybe if I use this system I will be able to cut on the expenses.

    6. Jason How says:

      It is very important for this system or the similar ones not to transfer the money from one category to another. Only this way it will work

    7. Lorelay says:

      I am using the saving apps but I don’t think they are helpful. Maybe this outdated system works. If you can save up to $5000 for six months it is definitely worth trying it.

    8. Burton says:

      Nice article. My parents used to have similar system back in the days. Even when they gave us allowance it was in an envelope and tried to teach us to stretch the money over the whole month. Of course they try to teach us to save and not to spend the whole sum in one day.

    9. Dragan says:

      My roommates and me, we have the similar system. We put the money for all the expenses like rent, utilities and groceries at the beginning of the month. This way we are sure we are covered for the whole month. And all the rest is up to everyone of us and how we want to spend. This way we are sure that we will pay everything on time and we will have enough food even if we don’t have money.

    10. Johnny says:

      With all this going on and me losing my job last year, I’ve realized how important is to have the right spending habits. Last year was very difficult for me and it changed me completely. So yes now I am trying to save as much as I can to have some cash for difficult situations

    11. Caroline says:

      Saving money is a habit that we learn from early childhood. And as an adult with a family depending on you it is very important to have some system to keep paying all the bills, to have enough food and clothes for all

    12. Nancy says:

      My weak point is buying clothes. If I can change that habit and buy only what I need I think that I will save a lot of money

    13. Renato says:

      As someone who is freelancer, I never know how much money I will earn. So this system does not work for me. I just save some money for the months when my income is low.

    14. Valentino says:

      If you have saving habits any system will work. Just try not to over spend and not to buy anything that you don’t need.

    15. Cecil says:

      I am trying to save but sometimes I overspend buying some food and making stock at home. I do not use them all and they expire. I think that I will have to work on that and make some envelope for the groceries and stick to it.

    16. Mirela says:

      Making a list of all the things that you have to pay plus for the food is everything you need. You can add 100 bucks for some additional thing that you need. All the other money we should put to savings.

    17. Davud says:

      Nice article and nice system. I will have to use some online system because I am paying almost everything online. I just keep a few bucks in cash

    18. Ioanna says:

      Thank you for the articles Promoney. You always have useful tips and systems on how to cut on the expenses and save some money

    19. Delice says:

      I live on employ benefits at the moment, looking for another job so to cut on the expenses is my every day’s fight. Hopefully this crisis will be over soon

    20. Larry says:

      Living up to your limits and saving some money from paycheck to paycheck is a healthy habit.

    21. Lawson says:

      Nice article. I like the envelope system. It helped me a lot a long time ago. I do not use it anymore but it is the best system.

    22. Mandala R says:

      I can not make myself to save some money. I always overspend and get myself into depts. I will have to find some system to keep myself within the limits

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