Estimated reading time: 16 minutes
Discover the simplicity and effectiveness of the cash envelope system for managing your finances. Take control of your spending and reach your financial goals.
Hi, I’m Eva from Teens Got Cents, and today, I want to talk about how a cash envelope system transformed how I think about money.
Cash and Envelopes, that’s my Budget! When I was about five years old, my parents gave me an allowance. I think that I got $3 each week.
I remember having three envelopes and my parents teaching me to put some money in each cash envelope category.
My envelopes were labeled savings, spending, and giving. I had three dollars and three envelopes, so my decision was clear.
The Cash Envelope System
Fast forward about twelve years, and I still use the envelope system today.
I now have six envelopes: spending, church, clothes, college, car, and retirement.
How Do You Get Started Using The Envelope System?
I’m so glad you asked!
The cash envelope system is straightforward.
First, you need to decide what areas you most need to control spending and where to use a cash-only system is reasonable.
My mom, for example, has used the cash envelope system in the past for spending, eating out, and groceries because those were the areas where she wanted to be most careful with managing her money.
Once you decide which ‘budget categories’ to use, buy envelopes and label them.
We had some red envelopes left over from Christmas one year, so I used those.
You can use the cash envelopes the bank gives out or any envelope or divider system that works for you.
Where To Keep Your Cash Envelope System
Keeping the envelopes in your purse, wallet, or car is a good idea if you are likely to forget them at home.
Labelling The Cash Envelopes
Every time you get paid, you withdraw or keep enough cash to fund your envelopes for that pay period.
It is also helpful to write the amount on the envelope that goes into it each pay period to help you keep track of everything.
I don’t have a regular income, so I do not put the same amount of money into each weekly envelope.
Whenever I earn any money, I take what I have and decide how much goes into each envelope.
Some people use their envelope system to help them save as much money as possible.
Stashing Leftover Cash
If they have money left in one of their envelopes at the end of the pay period, they remove it and put it into their savings or retirement account or even toward paying off a bill.
Others use any money that they don’t spend to treat themselves to something special, like a new outfit, going out to a movie, or something else fun.
Most of my envelopes are for long-term savings, but I have spent some money on clothing.
It can be fun to see how much you can save in different areas to do something else with the money!
There are a few reasons that I have stuck with a cash system rather than using a debit card or other method:
Back To Cash
When I handle the cash, making wise decisions about my money is more effortless.
At seventeen, I don’t have much money to work with and no regular bills.
I usually have about $20 to divide between my envelopes anytime.
I try to have small bills so it is easier to put a little money into each envelope, but I don’t have enough to put something into every envelope.
This also makes decisions about spending money easier using the cash-only budget system.
Can I go to the movies?
I looked at my spending envelope, and the answer was clear.
Can I buy a car yet? Ummmm. NO!
Unless someone has a car that only costs 57 dollars, my car’s current balance envelopes.
Spend Less Using A Cash Envelope System
For some reason, I seem to spend less when I have to pay cash.
Maybe it’s something about swiping a debit card that makes it too easy.
When I have to hand over a 20-dollar bill, I carefully consider the purchase.
At this stage in my life, I need that accountability.
This is one of the reasons I plan to avoid credit cards – it is just too easy to swipe away and not think about the money you are spending!
Motivated To Save
There are times when I want or need to buy something specific.
One of the great things about the envelope system is that I can make a new envelope.
Having the envelope motivates me to put as much as possible in it to make the purchase quicker.
This also works for me with long-term savings.
Seeing the balance in my car or college envelope going up is encouraging!
Of course, I try to ensure that I don’t allow my desire to buy something to influence how much I put into my long-term savings envelopes.
I may want a new iPod, but I want an even more solid retirement!
How To Use A Cash Envelope System For Budgeting
This is an easy cash envelope system that anyone can implement.
You can purchase a cash budget binder from Amazon for $10-12, similar to the one I’ve used in the photo, or make one.
- Create a budget
- Earn cash
- Put cash in envelopes with designated budget categories.
- Use the cash in the way it was designated for each category.
- Done
Many adults need a system that will allow them more flexibility than the envelope system, especially for paying large monthly bills.
However, using a cash envelope system for specific areas like grocery money, clothing, or spending might be beneficial.
It becomes more challenging to overspend at the store if you don’t have any cash left in your envelope.
Even my grandmother gets cash for her grocery envelope.
She keeps the envelope in her purse and pays cash at the grocery store.
This helps stop her from overspending on groceries.
My mom has a smartphone, and she uses a digital envelope system.
Every time she makes a purchase, we enter it immediately to know how much grocery or gas money we have left. Which leads me to my final point:
Tracking Your Finances
The method you use to track your finances doesn’t matter.
What matters is that you have a system and use it daily.
Or at least on a very regular basis.
If you know the envelope system isn’t working because you will be tempted to buy a new dress with college money, don’t use the cash envelope system!
There are several digital envelope systems, and I know people who keep track of everything on a simple Excel budget spreadsheet.
I’m sure there are other ways to track everything that I have never heard of!
Deciding how much you want to spend (or save) in certain areas of your budget and tracking that spending (or savings) is one of the most important things you can do to reach your financial goals.
Finding what works for you is excellent. But even better? Using the cash envelope system!
A Cash Envelope System Is Comforting
Well done, Eva; making money for teenagers is tough, but saving it can be even more challenging.
Getting “Back To Cash” is sometimes the best way until one gets a handle on spending habits.
Some people are just comfortable using cash, and that’s great; whatever works is essential.
Reading about how financially savvy you are with your budget using cash and the envelope system reminds me of a time when I was your age.
Controlling a teenager’s spending habits can be challenging for parents and their teenagers, especially when you want to teach money lessons to your child.
The only difference was that I didn’t use envelopes or an Excel budget spreadsheet like I do today to track our expenses.
I just tracked it all on paper and used my bank passbook for updates.
In my youth, I was also very responsible with my money, which helped shape my financial future.
Having parents who taught me about money early has helped me in ways I can never thank them enough.
Keep up the great work, and I wish you continued success on your journey towards learning more about finances and becoming financially independent.
Thanks, Eva, for stopping by today.
-Mr.CBB
https://canadianbudgetbinder.com/2023/01/01/canadian-budget-binder-2023-50-free-printables
Contribution Post By: Eva Baker is a high school student passionate about preparing for her financial future and helping other teenagers prepare. When she isn’t rock climbing at the gym or pinning ideas for her non-existent wedding, she documents her financial journey at Teens Got Cents. (no longer blogging)
great explanation Eva, you are doing fantastic for yourself. I just sent this post to a reader of mine who is trying to turn her finances around, I think this method can really help when you don’t know where to start from.
Thanks Pauline! I have thought about going with a digital envelope system but 1) I don’t have a smart phone and 2) I really like the accountability of the cash system.
Thank you Pauline. I have thought about using a digital envelope system but 1) I don’t have a smart phone and 2) Using cash really helps me stay on track.
Wow you are WAY ahead of your time Eva! It took me YEARS to really get a system that worked down for me. You are setting yourself up for a great financial future! Good luck to you and thank your parents for me as well. lol!
Thanks so much! I am very thankful for them!
Wow! Amazing discipline from a 17-year-old. I’ve never used the envelope system myself, but I like the concept of only using it for certain categories, sort of a mix-and-match approach. Thanks for the thoughtful explanation of your process.
Thanks Matt. Mr. CBB was very helpful to me as I got this post together. I really do love the envelope system!
Do you worry about having cash around? I’d make regular trips to the bank to deposit those long term savings. The last thing you want is a brother, sister, or friend to wipe you out by reaching in a drawer when you’re not looking and stealing your car savings.
I don’t worry about that right now because I have so little in my envelopes. I do trust my friends and family and have never even thought about the money being taken. As I save more I’m sure that I will put it into my savings account at the credit union! Thank you for commenting!
Great post Eva! You’re doing very well for yourself and it shows. We have used the envelope system for longer than I’d care to admit. 😉 We’ve had our spending under control for years, but just have found that it really does help us stay disciplined to keep within our budget and it’s much more painful to hand that cash over than it is a credit card.
Using cash really does make a difference doesn’t it? I am glad to have this system because it helps me be so much more purposeful with my money.
It’s great to see you here on CBB, Eva. I’m instilling the same same principles into my daughters and I hope when they are your age – they are still as disciplined as you are. I think it makes a huge difference starting this when you’re young – you’ve always done it and it’s always worked for you! You’re leaps and bounds ahead of your peers and yet you’re still able to have fun, even though you have a frugal mindset. LOVE it! I’m glad you’re out here, sharing your wisdom and encouraging other kids to develop their own money smarts.
I really appreciate your comment! I agree with you – when you start young it is just how you live your life. It doesn’t seem out of the ordinary at all to me.
Awesome article!!!! It is great that you have so much discipline at such a young age!!! Hopefully you will be able to walk away from college with no debt when you get that far. You will be so far ahead of the others there that are still learning how to manage their money……
That is my plan Christine – no college debt! It is hard enough getting started in life without having a lot of debt to pay off. Thanks so much for your comment!
I love the envelope system! A lot of folks lose sight of the fact that it doesn’t have to be physical envelopes holding real cash, I use quicken and create classes or categories to help me allocate my funds, I’ve been doing that since 2000 and can;t think of any other way that would work better for me,
My mom uses EEBA and we take money out of her ‘envelopes’ as we make purchases! I just like using cash because it really helps me keep my spending down.
So great to see someone so young thinking and planning for the years ahead! Keep it up! Im pretty good with my budget but I think I need to give this a shot, I could certainly improve. Thanks for sharing your story 🙂
Thanks so much Katrina. I hope that using the envelope system will be a help to you!
Great job Eva. It gives me hope that all is not lost for the future generation. It’s great to see someone taking financial responsibility at such a young age. It’s much easier to figure it out now than as a middle aged adult!
That’s exactly what got me interested in planning ahead. I want to avoid the big mistakes of student loan debt and credit card debt so that I don’t have to spend half of my adult life getting out of debt! Thank you for commenting!
Wow! You are a rock star! Kudos! Don’t stop.I also started using the envelope system a few years ago. It was after I made a bunch of mistakes though so you are well ahead of the game.
Thank you Samantha!
You are rocking it Eva. The envelope system is a great way to get control of your spending or start out with the correct way to spend. It is easier to deal with budgeting because you can actually see the money that you have. You are well on your way Eva!
Thanks so much!
BALLIN’! Well done! I didn’t figure out this budget thing until after I blew $100k in 3 years, UGH! Cash envelopes were my first year of marriage, now most things are automated, and the rest on rewards cards paid off every month. I do agree, however, that cash can keep you in check. We switch to cash for our food budget every 6 months just to keep our discretionary spending in check, and to remember what it feels like running out of cash.
$100,000? Wow. It’s hard for me to imagine having that much money! It’s really interesting that you go back to a cash plan every 6 months and sounds like a really good idea. Thank you for commenting!
You are doing awesome Eva! I wish I had been that financially savvy at your age 🙂
Thank you!
Eva – you give me hope for the future! 🙂
Thanks so much!
Eva, you are amazing! with so tiny amount of money and you are saving for RETIREMENT??!!That is truly mindblowing, considering all that will be coming up in your life between now and then requiring money! I have every confidence in you that you will be retiring in style 😉
Thank you so much! My goal is to live free from debt and be in a position to be generous to family and those in need. A little ‘style’ would be awesome! 🙂