How To Save Using A “CASH Envelope” System (THIS Really Works)

It was important for me to try this “cash only” method myself, before I recommend this to my friends/family.

I happened to use a few simple changes to make it easier on those who aren’t completely familiar with a digital budget. There is nothing wrong with your regular way of paying bills. However, I just wanted to try this with more ease.

Usually, I pay all my bills and expenses with my credit card to get the reward points. This includes food, dining, wardrobe and even gas. Then I would pay off those balances each month, so this cash only system was going to be quite an interesting discovery.

Following are the 7 steps I took to use in my “cash only” budget.


Yes, put them away!! I personally took all of my credit cards, except one, and placed them in my closet. I put them in the pocket of my winter coat, in an envelope. They were safe, out of sight and out of mind. If this seems to extreme, simply put them in a drawer for safe keeping. This is your very first step.


That’s right – grab a pen and paper – old school. If you are anything like me, I use Microsoft Excel for my normal budgetary needs, but let’s start from scratch. Start listing your expenses, i.e. mortgage or rent, gas bill, electric, grocery – the works.. List each amount you normally budget for down on a piece of paper.


Now, that your budget is on paper, it’s time to decide which categories you could save your hard earned dollars on. Where are you wasting money? Decide which items have a possibility to show better savings, if you were to only use cash on them. You can choose up to as many categories as you like.

I decided that my spending could improve on dining, grocery food and miscellaneous shopping.

I then highlighted the categories that occur on a regular basis and don’t vary financially. My rent and utility bills do not vary much, so those items were highlighted in yellow. I also placed an asterisk mark next to the bills I would like to work on in the future. My cable company is an option for that. However, yours will vary depending on your personal needs.


Begin by marking each of your “savings” categorized envelopes. For example, mine were dining, grocery food and miscellaneous shopping. So, I hand wrote in black marker on each of the envelopes my chosen category.

I set up a monthly budget for each one, however you can taylor the need for weekly or biweekly. Whichever way you prefer to do your own cost analysis.

Driving to the bank to withdraw cash for my envelopes was next for my experiment to work. Once I withdrew the cash, I hand wrote the amounts I was placing into each of my envelopes, so that I could keep a good tracking system. You could do this on an app on your cell phone or computer, but I preferred to try this by hand to see if it made a difference.


This is a little tricky, but still can work. Along with my other three envelopes, I labeled a blank one with online spending. A cute sweater caught my eye, so I used the one credit card that I didn’t hide away for purchasing that particular sweater.

I then took the money I spent on the sweater out of my miscellaneous shopping envelope and placed it in the online envelope. I hand wrote the expense down on my online envelope, ie. sweater $20, and also listed it on my miscellaneous shopping envelope. It’s very important to keep track of any online spending that is done. By performing it this way, it’s easy to be held responsible for each amount budgeted.

Being accountable for this $20.00, I then drove to the bank and made a deposit. You can follow the same method, or use the $20.00 for the following months “cash envelope” system.

Another idea is to use a prepaid credit card for items like this. It all depends on what makes it easier for you.


I don’t carry my cash envelopes with me everywhere I go. I keep them in my personal office in my desk drawer along with any receipts. You should do the same. Place them in an area where they will not be lost, or God forbid stolen by anyone in your home.

Before going to the store to do some cash spending, take the proper amount out of your categorized envelope and place it in your wallet. Please remember to keep track of money taken out or replaced. I kept my loose change in my envelopes, however you don’t necessarily need to do that. You could round your purchase up to the nearest dollar and put any change in your change jar.


Just in case you dash off to the grocery store on your way home from work, keep money on hand for these little emergency purchases. Being forgetful, I also kept my debit card and the extra credit card on hand. I only had to use it one time for the atm and then noted that on my cash envelope immediately upon arriving home. People may see this as “cheating”, but I kept very accurate records on my envelopes.


Budgeting the cash envelope way proved successful. I was shocked!! I found that I was so much more aware of my spending when I had to count my money out to a cashier, instead of just whipping out my credit card.

Trying this method for 2 months saved me $320 on impulse buying. At the end of the first month, I found $140 in my envelopes. The second month was even better. I had $180 extra in my miscellaneous shopping envelope.

If you were to check out Clark Howard’s Facebook page, there was some hesitance from people on trying to save money this way, as they missed out on some credit card reward points. To me, saving almost $200 per month was much more important.

If using cash for purchases instead of my credit card saves me money each month, then I’m willing to put this experiment into my permanent budgeting system.

Therefore, using these simple steps can and will save you money, whether it be weekly, bi-monthly or monthly. Just do the following:

– Hide those credit cards, and make your cash envelopes for each category you chose.
– Online shopping is possible using this method.
– Remaining expenses can be used on a credit card, but pay this off monthly.
– Mortgage or rent payments should not be considered for envelope saving as you are
paying the exact same account per month.
– Go old school – take notes on the envelope with the exact amount spent for each
– Keep money and/or credit card on you at all times for those unexpected necessities.

Please let us know if you choose to venture in this financial savings, and how it works out for you specifically.

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