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Cash Envelope System Basics



Brand new to the idea of living on cash instead of plastic? Well then you’re in luck – this post is for you! πŸ™‚

The Cash Envelope System from Dave Ramsey is a simple and long used habit from generations past where you spend cash in certain spending categories of your life. (Dave Ramsey’s website has a getting started article to check out too, FYI.)

The Cash Envelope System is a great way to get control of your spending, follow your budget & eliminate unwanted purchases. The best part is, it’s super easy to get started – just follow this 5 step process and you’ll be on your way to a better financial future!

Step 1: Pick Your Categories

To start a cash envelope system you need to begin by choosing which categories you’d like to try first. If your family is “all in” go ahead and try a few extra, but otherwise most people start off with 1-3 categories. Although many families start with food, clothes, blow money, and gas – my family uses the following cash budget categories now (2 years after starting):

  • Gas
  • Groceries
  • Restaurant
  • Entertainment
  • Clothes
  • Home Projects
  • Miscellaneous (Check out this great vlog from Rachel Cruze about this category!)
  • Hair Cuts
  • Daycare

Step 2: Set a Budget for Each Category

In my family of 3 we spend $150 every two weeks on groceries and household items. (That might not sound sound like much, but by meal planning and shopping at Aldi, we make it work quite easily.) We figured that out by tracking our spending in that category and finding our “average” amount needed – I now meal plan around that budget and include this money in our monthly budget.

Step 3: Visit the Bank to Get Your Cash
Every two weeks on payday I visit the bank to withdraw cash that we budgeted for each category and fill my envelopes. Your envelopes can be plain white mailing envelopes, binder clips like Rachel Cruze recommends or a fancy Deluxe Cash Envelope system – its totally up to you!

Step 4: Use Your Cash Envelopes

Every time you make purchases from your cash envelope categories use the cash you have in your envelope. The rules are simple: no cash = no purchases. (For the first few weeks you’ll forget and pull out your debit card – that’s totally normal, don’t panic, just put a sticky note on your debit card to remind yourself.)

Step 5: Evaluate Your Results

Just like when you create your budget, while using the cash envelope system (especially in the first 90 days) you’ll need to make adjustments. For example, as gas prices have dropped recently I no longer needed the full $100 I had budgeted bi-weekly, and have been able to adjust that area of spending and use the money for other purchases instead.
Special note for newbies – you’ll need to be patient with yourself and give yourself some grace. Don’t give up the first time you make a mistake or are frustrated by not being able to buy your favorite latte because your blow money is gone.


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