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Envelope Method

By on June 28, 2015

Creating a budget seems to be a no brainer. Everyone appears to have their own way of approaching it. You take your salary, subtract your bills, and if there is money left, you decide what to do with it. Is your method working for you? What are you doing with the money that is left? Is there money left? Are your bills being paid on time? Perhaps, there is a money leak and it’s possible that stretching or saving your income becomes increasingly more difficult.

It takes some discipline, but the envelope method can help you implement a budgeting system, that works to assist you, in living within your means. It can teach you to pay yourself first, as well. It’s a simple system to put into place.
How Does it Work?

With the envelope system, you distribute your money into actual standard sized paper envelopes, so only the money in each envelope category is spent. The concept is if there is extra in an envelope, it stays in the envelope, applied to debt in another envelope, or can be placed in your savings envelope.

The following is a list of possible envelope categories:

Home Maintenance
Property Taxes
Hair Care/ Hygiene
Meals Out
Child Care/Support
Auto Loan
Auto Maintenance
Public Transport
Car Registration
Auto Insurance
Property Insurance
Home Insurance
Health Insurance
Disability Insurance
Renter’s Insurance
Cable TV/satellite
Health Clubs
Pet Care
Dept. Store Cards
Bank Card
Student Loans
Credit Cards

Setting Up the System

The first envelope should be marked as yours. Place your name on it. Highlight it, so you remember to pay yourself first. Put the name and due date of your other bills on their own envelopes too. You can write the amount to pay and/or the balance left. You can decide if you want all of your bills to be categorized into envelopes, or if you want to use the envelope method for only expenses that fluctuate, such as groceries, gas, meals out, entertainment, and holidays. When the bill is due, the money is simply in the envelope.

Some people prefer not to place actual cash into the envelope. In this case, you can just write the amount of money needed and spent, on the envelope to keep track. There are also many services online.

Another modification you can create, is an envelope for your checking account. This would be an additional envelope to move money into, when you use your credit card. This helps because the money is available to pay your credit card bill. If using the envelope system without actual cash, then once your balance is at zero, it’s just like as if cash was in the envelope. You would either move cash from another envelope category, or stop spending until more cash is available.

A benefit with the envelope system, is that you can place your receipts into your envelope categories too. This will directly show you where your money was spent, and will help in your money tracking efforts. Tracking your money is important, to make progress with your budget. This system has you prioritizing your wants and needs.

For many using the envelope system as a cash only system works best. It can help you track, save, and not charge if you’re disciplined. It’s also a great introduction to snowballing debt. For others, they feel they spend more if the cash is there, so the modified system could work well for those preferring to use debit cards or checking. Regardless of which you opt to try or what categories you plan to organize, the envelope method is a wonderful organizational tool that is easy to start and maintain.


  1. Roy

    1/12/2007 at 3:44 pm

    Great idea. I will have to look into this for our family. I am also very interested in more of Dave Ramsey’s ideas. So any comments you have on his methods would be great.

  2. Sara

    1/12/2007 at 4:24 pm

    Can read my main forums at
    We have a Dave Ramsey forum. 😉

  3. Marie78

    2/18/2007 at 4:49 am

    I have started using the envelope system for a few categories. I am currently unemployed and I am saving change only and a few spare dollars, until I have a regular paycheck to save some steady money each month. I have a monthly grocery envelope $100, gasoline $25, and misc. (which includes my monthly prescription) $20. If there is any money from these categories left at the end of the month I put it in my change jar. I just recently added a gift envelope $25 dollars per month for gifts.

  4. Bumplett

    2/18/2007 at 10:13 am

    the envelope system takes alot of patience I found, and it is a bit of hard work – the main bills weren’t an issue for me as I knew how much was needed to pay this & that – the problem I faced was the “extras” such as gas, groceries, etc. ((I had NO idea how much money I was spending on gas!!))

    I’ve personally brought it down a notch and only use one envelope for everything – and I write on the outside of the envelope *what, where & how much*
    When the money’s gone, it’s gone, but I don’t have to worry about running out of gas! 🙂


    2/19/2007 at 8:01 pm

    with the extra money we have i have been putting it toward our spring break vacation. being a foster parent isn’t a consistent paycheck. sometimes its more than i expected, sometimes its less. so when i do have extra money i put it towards our spring break vacation, or a past due bill.

  6. emily_hope

    2/21/2007 at 1:44 pm

    I do the envelope system, partially. I have some things I use the envelopes for. I am using one for vacation. I am using one for credit cards, if we use it we pay it off every month. I have one for Christmas.

  7. mom23boys

    2/25/2007 at 7:15 pm

    I have been interested in trying the envelope system, but didn’t like the idea of having money in all those envelopes. I like your idea of not putting in the actual money, but making notes on the outside of the correct envelope to keep track of how much money is left for that category.

  8. sjpeer

    5/1/2007 at 9:11 pm

    Thanks for the nice overview of envelope budgeting. I’ve found envelope budgeting for specific categories where I tend to overspend the very best way to control my spending. We use envelopes for Grocery, Clothing, Personal, and Eat Out. The rest of our budget categories are pretty constant from month to month and therefore don’t require the control that envelopes provide.

    I’m a big fan of Dave Ramsey and recently posted a list of Dave Ramsey Resources and links on my blog. Enjoy.

  9. carol

    6/15/2007 at 8:09 pm

    I started using the envelope system January of this year. It has been extremely helpful in keeping me focused about saving money.
    And it has brought peace of mind as well as a feeling of me controlling the money instead of the money controlling me.

    I have the following envelopes: Pay myself first, Household expenses, Vet bills, School expenses, Gifts, Holidays. I have only $100 a month to work with, so I have had to get serious about budgeting and saving. Due to a number of unexpected vet bills, I have not been able to put money into the Gifts/Holidays envelopes, but it is wonderful to know that I have the money there in case any of our six cats get sick or hurt. And having money saved for when the new school year starts for my oldest son. After I get back on track, this is how the monthly check will be divided up:

    Pay myself first $20
    Household expenses $20
    Vet bills $30
    School expenses $20
    Gifts $5
    Holidays $5

    At the time of this posting, I have the following amounts saved in the following envelopes:

    Pay myself first: $13. 89
    Vet bills: $30.00 Just paid out $4.00 for deworm liquid
    meds for all six cats today.
    School expenses: $14.00

  10. Monica

    5/15/2008 at 1:54 am

    I began the envelope method approximately 3 months ago and it is working wonders for me. Here is what I do: I have a calendar and my “envelope purse” (basically a purse that is perfect size for my envelopes). I am paid twice a month. So I mark my calendar 2 months prior my paydays. I then mark things I know I need… such as groceries weekly, extra for myself, and cat food. And the day I recieve my bills I mark them on the calendar too (the due date). I have all my envelopes labeled and in chronological order according to due date. I call Fridays my bank days. So I go to the bank every Fridays and deposit money into my checking account and that account are for bills only that I am paying within the next couple of days.
    I began this method because I was tired of living paycheck to paycheck. I still am! But I know that I am not falling behind and I am that much closer to maybe being able to afford a shopping spree for myself. My goal is once I have all my bills paid for the next month then I owe to myself a small shopping spree. And I am getting close and that is whats great about this method, you know exactly where you stand financially. For the first time ever, I was able to pay rent 2 weeks prior to when it was due, that has never happened before!

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