How Do You Save Money with the Envelope System?

Published on May 10, 2021 by Lauren

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  • You’ve probably heard about the Cash Envelope System. It is a tried-and-true method to help you get practical and sticking to your budget. But how do you save money using the envelope system? Read on to learn about this pragmatic and straightforward system for staying on budget.


    How Do You Save Money with the Envelope System


    How Do You Save Money with the Envelope System?


    How Does the Envelope Saving Money Work? 

    I love the cash envelope system because it doesn’t take a million years or a complicated online platform to implement. In fact, you can get started with less than $5, and I promise you’ll save more than that in your first month.

    To start, consider any of your costs that are variable from month to month. This can be what you spend on eating out, clothing, cosmetics, groceries, girls’ nights, gifts for friends and family– anything that isn’t “nailed down” (like your rent or car payment). 

    You might look through your bank statements to get a realistic sense of how much you’ve actually spent on average in recent months in each category. Where can you trim back? Where do you need more flexibility? If you have three birthday gifts to buy in a month, you may need to say buh-bye to your biweekly manicure. But that’s the beauty of the system: you can change it up every month, and it’s even flexible within the month.

    The rules from here are simple: when you’re running low on cash in the “groceries” envelope, it may be time to switch to mac and cheese or beans and rice for the rest of the month. Is the “cosmetics” envelope empty? Then let me make this simple for you: Just Say No to that new eyeshadow palette. 

    Once the money is gone, it’s gone– there’s no bandwidth to charge now and pay later. You can shift cash between envelopes– more on that shortly. 


    How Do You Save Money on an Envelope System?

    The power of the envelope system is in its simplicity. Because you budget and allocate cash ahead of time, you don’t have the latitude to make any snap decisions in the Target checkout line. 

    Take your lowest-stress day of the week and sit down to focus on what your budget goals are. Need some help outlining what you have to spend, what your needs are, and what needs your attention? My Personal Finance Planner will give you the tools you need to get started.

    The envelope system has been around in some form or another for many years and the reason why is that it WORKS. When you’re committed to using only the cash you have, it’s nearly impossible to lose track. There’s a certain buy now / worry later haze surrounding your credit cards– it may as well be Monopoly money when you’re in the moment, with pending purchases in hand. Cash holds you to your goals by not allowing for any wiggle room, especially if you’re prone to impulse buys. Parting with bills hurts more than swiping your card, I promise!


    How Do I Get Started?

    You might be wondering where the heck startup costs are going to come from for this endeavor. It would be great if we all had our month’s pay free up and up-front to stuff into envelopes, but that’s not a reality for so many of us. 

    My recommendation is to build your financial cushion and to build it fast. Saving $1,000 in 30 days is doable, and share with you my best hacks for getting there in my online course. There, I’ll show you some unconventional ways for pulling together your starter fund and beginning your month with $1,000 cash. Then you can sit down and decide how that $1,000 will be split between groceries, gas, and other necessities.


    Does The Envelope System Really Work?

    The envelope system has kick-started many people out of debt. Sure, there are a host of apps, websites, and techniques you can try, but there’s a reason the simple envelope prevails: cash and categories just work. 

    It has worked for me and many of my clients, but there are plenty of financial gurus who also endorse this route to saving your finances and crushing your debt. Rachel Cruze and Dave Ramsey are among them. 

    If you stick to what’s in those envelopes and take your credit cards out of your wallet entirely, you will save money in the first month. And in the long term, you may change your own behaviors for the best. 

    One tip to keep in mind is that the cash is all there, and it’s fluid. Once you run out, you’re obviously done spending… but if you find yourself forking out a surprise $30 for a tire patch, you can move that money over from your grocery budget, or have your date night at home this week. Just be sure you keep an awareness of what’s left in each category. You can make it last through the month with some discipline.


    How Can I Save $5,000 in 6 Months with Envelopes? 

    If you’re looking to attack your debt aggressively, there are ways that the envelope system can help. You may need to take some drastic steps, but that $5,000 will feel worth it on the other side!

    Consider some of the following tactics:

    • Consider grocery shopping at Aldi. Sure, it’s a little weird and unconventional, but I will walk you through the store ahead of time so you show up prepared! You can feed your family for a fraction of your current grocery cost. If you have a family of 4 and could trim your grocery budget from $600 a month to $300 a month, that’s $1,800 toward your goal in six months out the gate.
    • Zero out your clothing budget. That’s right, take the envelope and assign it to something else (like medical co-pays, prescription costs, daycare/babysitting, car maintenance– anything!). If you Marie Kondo your closet, I guarantee you’ll find some things in there you don’t even remember buying. If you haven’t worn it in a year (or worse, don’t remember it at all), put it up for sale on Poshmark, eBay, or ThredUp to pull in some extra cash. 
    • Same with cosmetics: do you really need them? Can you find some lower-cost “dupes” on Pinterest for your favorite mascara, which may cause a fraction of the cost? Ask your friends, consult the internet. $60 foundation isn’t worth your financial future. Find a way of reducing or eliminating this cost.
    • Consider every cost-hacking trick in the playbook: carpooling to work, bringing your own coffee in the morning, sharing babysitter duty with a friend rather than paying a third party, coloring your own hair rather than shelling out $200-300 at the salon. Get creative!


    What’s the Verdict on Saving Money with the Envelope System?

    Obviously, I’m a fan. The envelope system is straightforward, gives you few excuses, and is just flexible enough to shuffle if you encounter an unexpected expense in one category. It’s practical, it’s simple, and that means you’re more likely to keep up with it. 

    Saving money with the envelope system keeps you accountable, and it also keeps you away from your credit cards! If you aren’t carrying them, there’s no opportunity to dig deeper into debt. That’s when you’ll really start making headway. 

    Curious to read more? Read my article here for the full run-down on how to get started and different approaches you might try!



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