How to use Cash Envelopes

How to Use Cash Envelopes Step-by-Step

Here is the quickest and easiest way to begin using cash envelopes.

When you are first learning to create a budget, all the information out there can be overwhelming.

So many different methods and ideas!

But I believe the very best way to budget your money is to tweak and combine various methods until you discover what works for you personally.

One method you might want to try is the cash envelope system.

Now one thing to consider here is that the traditional cash envelope system doesn’t work for everyone.  But thousands of people love it!  Others tweak it to make it work for them.

The point is you have to find what works for you!  If you’re struggling with your budget, and you’ve never tried cash envelopes before, then you should definitely at least try it to see if it’s right for you and your unique situation.

If you’ve researched budgeting methods, you’ve probably heard of the cash envelope method.  It’s been around a very long time.  100 years ago, our great grandparents, along with many other Americans in the early 20th century, were dividing their paychecks into spending categories.

And using cash envelopes doesn’t have to be confusing!

In this blog post, I want to share the quickest and easiest way to start using cash envelopes.

How to Start Using Cash Envelopes the Easy Way

This post may contain affiliate links at no cost to you.  Read my full disclosures here.


The cash envelope system is a visual, tangible plan for how you will spend your money.  It’s a great way to keep yourself from overspending.

Simply put, after you receive a paycheck, you pay your bills and debts (if you have any debt).

Then you will spend from how much you have left over by dividing the leftover money into planned spending categories.  Each envelope represents a category.

After the money from a certain category or envelope is all spent, it’s gone, and your spending in that category has ended for that paycheck.  You must wait until your next paycheck to fill the envelope again.



1.  When you get a paycheck, write down the total amount.

For this easy method of using cash envelopes, we will use one paycheck.  I find it is easiest to use only one paycheck at a time to budget my money.

Figuring out your cash envelopes is easier this way too.  I always budget paycheck to paycheck.

In fact, between my husband and me, we get 4 paychecks per month.  All four come at different times of the month.

So I budget each paycheck separately as each comes in.  I pay certain bills with each paycheck.

The first thing to do when you get paid is write the total amount of the paycheck on a piece of paper.  You can also download my free bill tracker below to do this.


2.  List and pay all the fixed bills you will be using that particular paycheck for.

To do this, list the fixed bills you will be paying with this paycheck.  Remember, there are basically two types of bills:  fixed and variable.

Fixed bills are the ones that mostly stay the same each month, such as mortgage/rent, electric, car insurance, internet, cell phone, etc.

Variable bills are the ones that can change each month, such as groceries, gasoline, food, entertainment, clothing, etc. The easy way to keep fixed/variable straight in you mind is to just remember that the word ‘vary’ means to ‘change’.  So the variable bills are the changing ones.

When you budget by paycheck, each paycheck will be used to pay certain bills, but likely not all your bills.

For me, I use one particular paycheck to pay my fixed expenses of mortgage, electric, and cell phone.  I use a different paycheck to pay for my other fixed bills.

So for this step, list and pay the fixed bills you have designated to come from this one paycheck.

3.  Subtract all the bills you just paid in Step 2 from the total amount of your paycheck from Step 1.

On your sheet of paper, or your printable bill tracker (download below), subtract each of the bills you just paid from your total paycheck amount.

The reason you need to do this is to figure out how much money you have left over after your fixed bills are paid.

The amount you have left over is the amount you will be dividing for your cash envelopes.



4.  Determine and list your cash envelope categories.

Now it’s time to choose the categories for your cash envelopes.  What categories should you use for each envelope?

You get to decide this.

Start by choosing some categories where you often overspend.  For many of us, that might include groceries/food.  It’s so easy to overspend at the grocery store, so that’s a good one to start with.

What about eating out, entertainment, beauty products, and miscellaneous?  These all are good categories for your cash envelopes.

Once you have decided what categories you want, write them down.


5.  Divide the leftover money by listing the specific amounts for each cash envelope.

Next, you need to figure out how to divide up your leftover money after bills are paid.

What if you have no clue how much money to use in each category?  Well, ideally, you would need to track your expenses for a month to find out how much you normally spend in each category.  And if you don’t already track your expenses each month, you will definitely need to start.

But the purpose of this blog post is to get you started using cash envelopes the quick way.  One quick way is to print last month’s bank statement (and credit card statement, if you use credit cards).  After you have printed these, use highlighters to figure out how much you spent in each category, such as food, eating out, gasoline, entertainment, miscellaneous, etc.  You can determine how much you spent for a month.  If the paycheck we are working with is for two weeks, divide the monthly spent numbers in half.

Now take your leftover money, grab your calendar, and use your list of envelope categories from Step #4.

Check your calendar to see if you have any events, parties, or activities during the current paycheck period where you will be spending money.  Be sure to include this in the cash envelope planning.

Now divide up the leftover money.

Let’s look at the example below:


$2045  Paycheck income

$1272  Total paid toward bills from this paycheck

$ 773  Leftover money


In this example, you would have $ 773 left over after bills to divide up into your cash envelope budget categories. It might look something like this:


Groceries  $300

Eating Out $50

Health & Beauty $50

Gasoline $150

Entertainment $50

Household $50

Miscellaneous $50

$23 Leftover money 

Some people include gasoline as a cash envelope category, but I don’t.  I don’t like walking into a gas station with a lot of cash.  I would rather pay at the pump with my card.

However, I do budget what I expect to pay for gasoline during the current paycheck.  Then I adjust based on how much I actually spend.  I can tell how much I actually spend because I write it down on my expense tracker.  I guess you could say I track gasoline as a cashless envelope.  That’s when you account for it on paper by subtracting it from your paycheck total, but you don’t actually withdraw the cash from your bank.


6.  Decide what you would like to do with any leftover money.

After you have determined the amount of money you want in each cash envelope, check to see if you have any left over.

In my example, I have $23 left.  So now I need to decide where to put that money.  For me, I would put it towards one of my savings goals.

So if you have any leftover money, what will you do with it?

You can use it towards your savings goals, use it as extra debt payment, or divide it between the two.  You could also add it one or more of your cash envelopes.



7.  Write down on a piece of paper the number of $100 bills, $50 bills, $20 bills, etc. you want the bank to give you.

These are called bill denominations.  In this step, you will make a list of each type of bill.  In the example above, my list might look like this:

$10 – 2

$20 – 4

$50 – 5

$100 – 4

TOTAL:  $750  


8.  Head to the bank and give your list of bill denominations to the bank teller.

After the teller gives you the cash, be sure to ask the teller to give you the list back.  You will need this list when you stuff your envelopes.


9.  Print, assemble, and label your cash envelopes.

You can use any old envelopes for your cash envelopes.

But that’s no fun!  It’s much more enjoyable to use cute and colorful envelopes.

You can download and print my free cash envelopes below in the Easy Cash Envelope Kit.  Simply sign up and have the kit sent straight to your inbox.

After you print them, grab the following supplies:


a pen

index cards (one for each envelope)

glue or tape

Next, cut out each envelope and fold along the lines.  Use tape or glue to secure your cash envelope in place.  Label each envelope according to its category.


10.  Stuff your envelopes with your cash according to your bill denomination list.

Once you have your pretty envelopes all ready, lay them out on the table.

Divide your cash money according to your list, and start stuffing your envelopes!


11.  Inside each cash envelope, add an index card to track your spending.

Grab your index cards.  At the top of each index card, write the name of one of your categories and the amount of cash you are starting with in that envelope.

Every time you spend cash from that envelope, write the amount on the index card and subtract it out.  Store the index card inside the envelope.

This is how you will always know the amount of money you have left in your envelope.


12.  Use your cash envelopes to help you stay within the budgets you have set.

Once you run out of cash in an envelope, you have met your budget for that category during the current paycheck.

So that means if you are at the grocery store and what you have in your cart goes over the amount of money left in your cash envelope, you must put something back on the shelf.

It sounds sort of harsh if you’re not used to it, but it’s really a great way to set limits on your spending.

In order to spend any more in that category, you must wait until your next paycheck, when you repeat Steps 1 through 10 above.

If you have any money leftover in your envelopes at the end of the pay period, you can use it towards your savings goals, throw at at your debt, or save it for future use in that category.


If you are new to using cash envelopes, it will likely take a few paychecks of tweaking your spending amounts to find what works for you.

But stick with it and you will discover a great tool for helping you control your money.  And it will fit your unique financial situation.



Even though we live in a digital age, with apps and spreadsheets for everything, having a visual, tangible way to see and touch our money is a great method to keep us from overspending.

Sometimes when things are hidden within a computer or a phone app, they are out of sight and out of mind.

The point is that cash envelopes work!  And when it comes to budgeting your money, getting out of debt, and achieving your savings goals, just DO WHATEVER WORKS!  If you have never used the cash envelope budgeting system, I promise it is worth a try.

In fact, you might just find it to be a game changer for you!

So the next time you receive a paycheck, pay your fixed bills, determine your spending categories, and plan how you want to divide your leftover money.  Next, create your envelopes and stuff them with your cash.  Track your spending from each envelope.  Discipline yourself to stick to your planned budget.

Before you know it, you’ll be handling your money like a budget boss and teaching others how to use cash envelopes too!




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