How to do envelope budgeting

How to do envelope budgeting

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The envelope system is a budgeting method that allows you to physically portion out your monthly income toward different spending categories. The concept is simple: Take a few envelopes, write a specific expense category on each one — like groceries, rent or student loans — and then put the money you plan to spend on those things into the envelopes.

Traditionally, people have used the envelope system on a monthly basis, using actual cash and envelopes. More recently, people have adopted digital methods, including spreadsheets and apps like Goodbudget and the Mvelopes.

How the envelope system works

Start by thinking about the types of expenses you have and sort them into categories . You get to decide how broad or specific to be here. You can have a general “going out” envelope, for example, or you can have a “movies” envelope, a “restaurants” envelope and a “drinks” envelope.

Next, label an envelope for each category and fill it with the amount of cash you’ve allotted for that expense. You can divvy up your money as you see fit, but a good place to start is with the 50/30/20 budget . This means you put 50% of your after-tax income toward needs like rent and groceries, roughly 30% toward wants like travel and eating out, and at least 20% toward savings and debt repayment.

Say you take home $3,500 a month. This is what your budget might look like:

$1,750 in your needs envelopes.

$1,050 in your wants envelopes.

$700 in your envelopes for savings and debt repayment.

When you pay for something, use money only from the corresponding envelope. For example, if you set aside $50 in an envelope marked “coffee” and you buy a $5 latte at Starbucks, you’ll take the money from the envelope. That leaves you with $45 left to spend on coffee for the month.

You can refill your envelopes once a month or after you get your paycheck.

The pros

Using the cash-based envelope system also helps avoid the overdraft fees and debt that can come with frequent debit and credit card swiping. Physically dividing up your money also makes you aware of exactly how much you have available to spend on a given item, which helps curb overspending on impulse purchases.

“What either makes or breaks a budget is the variable expenses. It’s the going out with friends here and there. It’s the $1.25 we’re giving to Redbox. It’s all these little things that add up,” says Carlos Moreno, a financial specialist and coordinator of the Mobility Mentoring Center at Economic Mobility Pathways , a Boston nonprofit that serves low-income families.. “That’s where the envelope system is so effective. It shows you right then and there how much money is going into specific categories.”

“ Cash-only users can’t spend more than they’ve allotted and are more likely to feel an emotional connection to their money. ”

Cash-only users are more likely to feel an emotional connection to their money, too. Because cash is visible, touchable and instantly parts with you, it’s easier to be aware of how much you’re spending — and you’re likely to spend less than you would with a credit card, according to several studies .

The cons

Making regular trips to the bank or ATM to withdraw money can be time-consuming and leave you vulnerable. Carrying large sums of cash puts you at risk of loss or theft. You’ll also miss out on the protection and rewards that credit cards can offer.

Protect your savings allotment by putting it into a savings account, preferably one that pays a good interest rate, rather than keeping it in an envelope where it could be easily lost or stolen.

Who benefits from the envelope system

The envelope system can help new budgeters and impulsive spenders. It lets you set goals and gauge how much you spend and save. We recommend this method to people who want to take charge of their finances in a hands-on way.

The envelope method is a simple but powerful budgeting technique that can help you keep your spending under control.

It involves setting up multiple envelopes (like Monzo Pots) and dividing your money between each one. You use the money in each envelope for a different thing (like bills, groceries or having fun).

It makes it easier to see how much you’ve got left for each type of spending, so you don’t accidentally spend your rent money on something else.

Money-saving gurus like Martin Lewis and Dave Ramsey love it, and we see it crop up on personal finance forums and blogs all the time. It’s gained a cult-like following because it’s simple to use, and helps you see really clearly how much you’ve got left to spend on certain things.

It takes a little organising to set everything up. But you can do it all through Monzo. If you don’t have Monzo yet, download the app to get started!

1. Balance your budget

First, you need to see if you can afford your expenses. This is called balancing your budget. It means comparing what you expect to earn with what you plan to spend, and deciding how to cut costs if you need to.

Monzo makes it easy to see all your spending, which will hopefully make this bit less of a slog.

It’s really important not to skip this step. As no amount of tips or tricks will work unless you know your income can cover your expenses. Plus, you’ll learn things about your spending patterns that can help with the next few steps.

2. Choose your categories

Next, group your spending into a few different categories, like:

Tax (if you’re self-employed)

There’s no rule about the number of categories. Just remember that each one gets its own envelope.

3. Decide how much to spend on each category

Decide how to split your income between the different envelopes. You should already have an idea about how to do this from the first step (balancing your budget). And because Monzo already groups your spending into categories, it should be easy to see how much you’ve spent in the past.

It’s usually a good idea to slightly overestimate the amount you’ll need for bills and other essentials. And don’t forget about big annual or one-off expenses, like Christmas presents or an MOT. You might want to update your allowances regularly to cover these. Or you could set up a separate envelope and put money into it every month so you’re prepared.

4. Create your envelopes and stuff them with cash

Each category needs it own envelope – a place where you can put the money you’ll use for that kind of spending.

You can do this with Monzo by separating your money into different Pots. If you get paid into your Monzo account, Salary Sorter will even help you do it automatically after you get paid!

Give each Pot or ‘envelope’ a name, and put the right amounts into each envelope as soon as you get paid. When you need to pay for something, take the right amount out of the right envelope.

You can even set up a Bills Pot, so you can set aside money for bills and pay them straight from the Pot.

Monzo makes it easy to set savings goals and track your spending рџ’Є

Printable budget envelopes may assist you in managing your finances and preventing overspending. It’s time to get serious about paying bills, saving money, and getting out of debt!

What is a Budget Envelope, and how does it work?

If you’ve never heard of the Budget Envelope System or are searching for some pointers on how to make it work for you, we’re here to assist! If you feel like you’re splurging in particular areas of your life, such as clothes, food, or entertainment, this strategy is ideal. Simply create a budget, spend the money you put out for each category, and stop when it’s gone!

The notion of a Budget Envelope is straightforward.

  1. Write the name of a category where you spend money often on several envelopes. Here are a few such examples:
  • Rent
  • Insurance
  • Gas
  • Groceries
  • Entertainment
  • Health
  • Makeup and hair care
  • Travel
  1. At the start of each month, put pre-determined quantities of cash in each envelope.
  2. Put your money in these envelopes and utilize it as needed. This will help you keep track of how much money you have left to spend in each area and will help you keep track of your spending pace. Don’t forget to return any change you get with your purchases to the appropriate envelope.
  3. Once the money has been spent, stop shopping/playing until the beginning of the following month, when you will refurbish it.


While the cash envelope technique works best when buying with cash at a shop, you can still use it to keep track of your online purchases. Simply write down every purchase or payment you make outside the envelope and don’t go over your assigned budget for that area.

To avoid being tempted to spend the money again, take it out of the envelope and put it elsewhere. I highly advise you to deposit any money you spend online into your bank account weekly.


While using money from your clothes account to pay for gas may not seem like a huge problem, try to avoid it so you can experience what it’s like to keep to a budget. Come up with new approaches to get to the conclusion of the month –

  • If you run out of money, don’t go out to eat! Instead, eat leftovers or go through your cupboard to see what you can prepare with what you already have.
  • If you’re running short on petrol, reconsider those brief runs to the coffee shop and consider joining a work carpool.

Reevaluate at the beginning of the month if you routinely run out of money in one area but always have money left over in another.


It’s time to rejoice if you have money left over at the end of the month! You may save your money for the following month, put it in a “rainy day” envelope, pay off debt, or put it toward a vacation fund. (Or you could buy that new pair of pants… we won’t tell!) It’s thrilling to come in under budget, and rewarding yourself will keep you motivated!

Is the Envelope System Effective?

Using cash envelopes instead of your convenient credit/debit card forces you to consider your expenditures more carefully. It will lead to fewer one-time purchases of a few bucks. (The money adds up!) Using the currency method also reminds you how much time you have left and when you should quit. When the money is out, the game is over!

What Is a Cash Budget Envelope System and How Do I Get Started?

It’s simple to get started with a budget envelope system. Here’s how to do it:


  • Cardboard
  • Envelopes that are printable (download below)
  • Printer
  • Scissors
  • Glue/tape (optional)
  1. Print the Budget Envelopes PDF on paper after downloading it.
  2. Cut the envelopes out.
  3. Fold and adhere were specified with glue or tape.
  4. Fill in the blanks with your category.

5…. and that’s all there is to it! Prepare to budget by tucking the envelopes inside your wallet.

L Bee Note: While I am working today, enjoy this guest post from the folks over at Your Finances Simplified, another super-awesome PF site. I’ve never used the envelope budgeting method (mostly because I was scared of running out!) but I appreciate the step-by-step how to below. Check it out!

Long before the iPhone, finance apps, the Ipad and even before (gasp!) the Internet, our grandparents came up with some pretty powerful ways to set money aside. More and more people are starting to realize that their savings strategy just isn’t working. Worse still, some are just waking up to the fact that they might not even have a strategy at all.

Not So Ancient Wisdom

What is the ancient but effective savings strategy? Would you believe something as archaic as an envelope? That’s right, a real, hold it in your hand, paper envelope. Some modern financial pundits have uncovered this proven savings system and have renamed it as the “envelope savings system.” Most likely grandma didn’t use such a fancy sounding name, but it doesn’t matter what we call it, the system really does work.

How Does It Work?

The heart of this system involves putting cash into envelopes you label for specific bills. It is certainly true that using cash may sound quaint and more trouble than it’s worth. However, keep reading and you will soon understand the hidden power of this system.

You see, the experience of using physical cash triggers a different psychological reaction inside of you that you may not even be consciously aware of. Unlike whipping out your credit card when you are dining out at Fridays and blissfully signing the credit card slip using cash triggers a different part of your brain. Incredibly, opening your wallet and pulling out cold hard cash triggers a pain response in your head. Can you see how using cash is a natural deterrent to overspending? That explains the cash part.

So, what is this about envelopes?

Envelopes are a tool for you to set aside money for certain expenses that you pay every month. The point of using a real envelope is that the envelope serves as the complete budget for that expense each month. For example, suppose you set up an envelope labeled dining out. Knowing that you and your significant other like to dine out on Friday nights, you decide to budget $75 per week for dining out. That means you put in $75 times 4 or $300 into the envelope labeled dining out. Now here is the key point: when the money in the dining out envelope is gone, so is your dining out for that month. Are you following along here?

This envelope savings system really serves as a NO PAIN budgeting system. Note this is definitely not at all like the coaching from the personal trainers who constantly remind you that “no pain no gain.”

Nope, none of that kind of stuff here. The envelope system really is a painless way to set aside money for the expenses you know you will have as well as the things you want. In other words, no pain equals your gain.

The Actual Envelope Budgeting System

Setting up your personal envelope system only requires only a little bit of effort on your part. First, take a look at your monthly expenses. For most people, the best strategy is to separate your expenses into two broad categories.

Call these two categories: Fixed Expenses and Variable Expenses. Your fixed expenses are exactly what they sound like, and they include bills such as your monthly rent or mortgage payment, your car insurance, car payments, and other expenses like those. Your variable expenses are those expenses that seem to go up and down every month. These would be categories such as groceries, dining out, clothing, etc.

Working the System

Now you have divided your expenses into fixed or variable categories. Next it’s time to work the system. The fixed expenses are best to pay with auto-pay. For example, your insurance payment comes straight out of your checking account each month. Total up all of your fixed expenses and make sure you keep that amount in your bank account.

The remainder of the money comes home with you. At this point, you want to carefully divvy up your cash into all of your envelopes. There are two things to keep in mind when you are stuffing your envelopes. Make sure you have an entertainment envelope. Also, in the beginning you are probably better off if you include an envelope you label Safety Net. The Safety Net envelope is only there should you find that your underestimated one of your variable expenses.

The Key to the System

The key to the envelope system is that you never ever “rob” one envelope to pay an expense from another. The only exception to this rule is using money put into the Safety Net as you set up and fine tune the system in the first few months. The problem areas are most likely to show up in the dining out or the entertainment envelopes. If you get to the middle of the month and your dining out envelope is empty, that should tell you something.

Either you set aside an inadequate amount, or you are spending more than you think you are.

In Conclusion

This envelope savings (no pain budget) system really works…if you play along and follow the rules as outlined above. This system allows you to take control of your spending, and you may well find yourself with more money left over at the end of the year.

Jim Gibson is a freelance writer who writes for Your Finances Simplified. He is passionate about finance, especially personal issues, and martial arts. He spends his time writing on financial topics when he is not training or spending time with his beloved wife.