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Envelope budget system: What it is & how to start cash-stuffing

Father calculating with son
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Creating a budget can help you feel more in control of your money. Even if you've only recently started on your financial journey, budgeting can build a foundation for achieving goals like saving for retirement, starting a family or feeling less stressed about unexpected expenses.

There's no one-size-fits-all method for budgeting, but trying out a few options may help you find what works for you. One savings strategy is the envelope budget system. It uses a cash-stuffing method—splitting physical money into envelopes—to help track spending. Here's how it works.

What is the envelope budget method?

The envelope budgeting system is a hands-on approach to creating and setting a budget. Rather than tracking spending online, you keep cash in envelopes.

Each envelope represents a budget category, such as groceries, entertainment or eating out. Start the month by putting the amount of cash you've budgeted for each category in a separate envelope. Once an envelope is empty, you can't spend in that category until next month.

The point of this method is to minimize excessive spending, keep your budget in check and help you visualize and "feel" the spending by handling actual cash as opposed to a credit or debit card.

Who benefits from this budgeting system?

This approach can help people who struggle with overspending and impulsive spending. It's a way to physically track budget categories and not lose track of your spending.

Having tangible accountability may work if you have a hard time sticking to a budget. It also can be beneficial if you prefer using cash over digital payment methods. For budgeting beginners, cash stuffing can be a straightforward way to track your money without getting into the nitty-gritty details of finances.

How does cash-stuffing work?

This system is like a zero-based budgeting approach, meaning you take your income and divide it among all your expenses and savings until you have no cash left.

In general, your envelope budget will help you track how you handle money in these key categories:

  • Income. Your paycheck, funds from side hustles or part-time jobs, alimony or child support, investment income and governmental support.
  • Savings. Funds to pay yourself first for emergency funds, retirement savings, or future financial needs like paying taxes or home and car repairs.
  • Necessary expenses. What you pay every month to cover the basics, like housing, transportation, utilities, loan payments and childcare.
  • Discretionary spending. These costs include money spent on things you don't need to survive but enjoy doing or having, like going out to eat, other entertainment and hobbies.

Envelope budgeting can be especially useful in managing your discretionary spending. It's common to overspend in this area without realizing it when you use checks or credit cards. If you have non-cash payment methods already set up for your mortgage and other bills, you could consider cash-envelope budgeting just for planning your discretionary spending.

Here's how to start with the cash-stuffing method.

Step 1: Create a budget

The 50/30/20 budget rule may work for you if you're unsure where to start. It uses 50% of your income to cover fixed costs, 30% for variable expenses and 20% for savings.

These are general guidelines, not hard and fast rules. Depending on your spending habits and goals, you may need to tweak the percentages. And remember, a budget is a living document. As you get more comfortable with it, you can adjust to better reflect your reality.

  • Add up monthly income. Look at your paycheck stub. If you have other sources of income, include those.
  • List expenses. Review your bank account and credit card statements for the past month's spending. That should give a solid baseline of your variable expenses.
  • Determine a budget. Create spending limits for your variable expenses employing the 50/30/20 method mentioned previously or another system for dividing your cash to cover your needs, wants and wishes. It's OK to guess at first and adjust later.

Do you want to start saving money more quickly? 

Creating financial goals can help you tie your savings to a purpose. Explore more with
SMART financial goals

Step 2: Assign envelope budget categories

Once you have your budget, break your expenses into categories that you'll use to label your envelopes. You might have one just for your mortgage or rent but another for all the combined house utilities. You may want to isolate "dining out" or "entertainment," or you may prefer all your discretionary money to go in one envelope to be used for anything that could fall in the category. Be sure to set aside an envelope for each of your specific savings goals. The point is to use groupings that make sense to you.

Step 3: Fill the envelopes and stick to your spending limits

Once you set your categories, add cash to the envelopes as specified in your budget. For example, let's say you have $4,000 per month to divide. You might break it down as follows:

Essential utilities:$400
Emergency fund:$100
Retirement savings:$500
Car and insurance:$550
Other insurance:$150
Student loan:$150
Dining out/entertainment:$250
Personal care and clothes:$100

Label the envelopes and put the designated amount of cash in them. As the month goes by, pull cash out of the appropriate envelope when you need to spend it. When the envelope is empty, you're done spending in that category.

You may find that having to physically pull cash out of the envelope makes you think twice about spending, minimizing impulse buys.

At the end of the month, review your spending. If you're hitting your budget and still have a little left over every month, consider transferring it to your emergency fund. Or you can create a new bonus envelope to treat yourself.

What are the pros & cons of envelope budgeting?

The cash-stuffing budgeting system is a unique approach to managing your finances, and it's not for everyone. Here are some of the advantages and disadvantages to consider.


  • Physically having to spend cash can help prevent overspending.
  • Limiting spending to cash on hand encourages prioritizing needs over wants.
  • Using cash first for discretionary spending can help minimize credit card dependence.
  • This method is simple to use and is a tangible representation of your budget.


  • It may not be possible to use cash to buy some items, which can make it hard to be strict with your envelopes.
  • Aligning spending categories to one envelope can be tricky. You may buy groceries and toiletries at a convenience store, and taking the cash from both envelopes to pay may not be easy.
  • Some people may not feel comfortable carrying cash, and there's the risk of misplacing an envelope.
  • Using this method the way it was traditionally designed doesn't take advantage of technology. Budgeting apps and tools can make connecting your bank and credit cards easy to manage and monitor spending.
  • This method doesn't directly focus on saving or paying down debt first unless you consciously decide to have those envelopes and put extra in them.

Envelope budgeting FAQs

What if you shop online or use checks?

Buying online, paying with a debit card or even using automatic bill pay systems doesn't mean you can't use the cash-stuffing budgeting method. Just make sure you remove the amount of money from the envelope and apply it to the account from which you made the payment.

You also can consider using an online version of the cash-stuffing budget method; several apps exist to help you digitally divide your income into spending categories with limits. You also could consider creating subaccounts in your bank account for each category and limit the amount to what's in your budget.

What if an envelope is out of money?

It's tempting to take money from another envelope. But that probably won't help you keep your spending under control.

Instead, investigate why you're overspending in that category. You may have underbudgeted in one category while overbudgeting in others. If so, readjust the numbers. Or you may need to find ways to either reduce your spending or increase your income.

Find the budgeting method that works for you

The journey to financial success starts with a solid foundation—and budgeting plays a big role. If you're struggling with overspending, the envelope budget system is an approach that can help.

A financial advisor also can be a resource. They can offer suggestions for budgeting your needs, wants and savings to help you reach your financial goals. Connect with a Thrivent financial advisor near you.