Tell Us Tuesday: The Envelope System

by Kelly · 27 comments

in Tell Us Tuesday

I have to admit that I’ve never been a great fan of using cash. Whenever I do try to use cash to pay for my purchases, planning ahead of time and withdrawing what’s needed, I usually end up spending more than I would have otherwise. Why? Because whatever cash is leftover ends up getting spent on little stuff, piffled away here and there. All of a sudden, what I wouldn’t normally have spent gets spent in a flash.

But I know the envelope system is very popular! So the subject of today’s Tell Us Tuesday is how you do (or don’t) use envelopes to manage your spending? Does the envelope system, whether real or virtual, work for you? Have you been using it for a long time, just started, or know it doesn’t work for you? What should I know to make it work for me?

Tell Us Tuesday- tell us today!


1 Amy June 9, 2009

I agree! If I carry cash, I want to spend it. I do use a “virtual envelope” system, I guess. I have a little notebook where I write down what we spend in each category each month. It works pretty well, as long as I don’t forget the notebook!

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2 Kelly June 9, 2009

I use a notebook system whenever I’m on vacation, and it works pretty well. I should start doing it in every day life too I guess!

3 Molly June 9, 2009

Oh, I can’t carry cash – it gets lost in the great abyss that are coffee shops….

4 Kelly June 9, 2009

LOL! The only way I no longer have a ‘latte factor’ expense is because there are no Starbucks in the town where I live!

5 RML - Being More Through Having Less June 9, 2009

I think the envelope system works for me because I NEED the stringent control over my spending :). I guess if you are worried about spending more rather than less, you could put less in your envelopes to start with!

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6 amy June 9, 2009

We use 4 envelopes….groceries, gasoline, household, and entertainment.
We put the budgeted amts in each envelope every 2 weeks and that’s
what we spend. Have been doing it this way for several years and it
works for us. Try it!

7 Heather June 17, 2009

I am wondering what you pay for out of household ? I want to do the envelope system , but , I don’t know what categories I really need to fit our life on a daily basis

8 Gabriel June 9, 2009

I never have cash and usually have to ask my hubby for it when I do need it (so I don’t take money out of the wrong account at the wrong time) which I find awkward. $20 can usually last me for months, but if I carry more than that it just fades away. I sometimes think I should try an envelope for my personal entertainment expenses because I’m bad at keeping track. I either don’t buy anything or I buy too much. Otherwise having everything on the credit cards (paid off monthly) makes it much easier to track expenses and adjust the next month.

9 Kika June 9, 2009

I keep track of everything I spend in a notebook which I’ve organized into my budget book. Sometimes I overspend or borrow $ from other categories but it still works well for my life.

10 neimanmarxist June 9, 2009

we use the all-cash envelope system. I really like it because once the money is gone, it’s gone. I also get embarrassed, fumbling around for my card all the time. I’m probably just traumatized from the days that we juggled credit cards depending on which one was furthest from its limit at the time, which is kind of embarrassing. 😛 i find we spend more money when we use our cards instead of cash-only- it doesn’t feel like spending money when I just swipe the ol’ plastic or buy online, I guess.

We’ve recently stopped dividing the budgeted cash into separate envelopes. There’s just one main stash for everything. When the money is gone, it’s just gone. Then we have to wait ’til next month!

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11 Rini June 9, 2009

When you withdraw $40 to pay your son’s school fees, give the school $36.50, then spend the remaining cash at Starbucks, you are NOT using the envelope system. You are using the ATM system. 😉

The envelope system is meant for recurring expenses, like groceries. At the beginning of the month (or whenever), you put $x into the envelope. Let’s say $400 for this example. The next week, you go to the store and buy $73.50 in groceries. Now you have $326.50 in your envelope. There is no “extra cash”, there is only your grocery envelope. The money in that envelope does not get spent on ANYTHING except for groceries.

At the end of the month, let’s say you have $39.43 remaining in your envelope. Now there are two choices, depending on the rules you specify when you start the system. (1) You take the envelope to the bank, deposit $39.43, and put it toward some predefined financial goal (e.g. paying off debt). Then you refill it with your new $400 for the coming month. (2) You leave the money in the envelope and add your $400 for the new month. Now you have $439.43 in your envelope – money which is ONLY to be spent on groceries. This method allows for fluctuating costs (e.g. you spend $350 in February, but $450 in March).

That said, we do sort of a “virtual envelope system” in my house as well. We currently have two checking accounts (one at ING, one at a brick-and-mortar bank). ING gets the majority of our paychecks and is used ONLY for bills and regularly scheduled savings/debt contributions. The physical account gets a set portion of each check and is used for gas, groceries, and discretionary. All three categories are lumped together, but when the account is empty, we don’t buy any of the three.

Eventually, I would like to move to a three-account sytem. One for bills, one for required variable expenses (gas & groceries, primarily), and one for discretionary spending / fun stuff.

12 Teresa June 9, 2009

We use a virtual envelope system. I keep track of the amounts in each category on the computer and just remember how much we have available to spend in each category. The only cash we actually use is personal discretionary cash and grocery money – because we need to pay cash at the market and at the dairy.

Virtual works so much better for us because it is always available. What if I find a great deal on something for homeschool but don’t have that envelope with me? Borrowing back and forth between envelopes just leads to confusion. What if my husband needs to pick up something from the hardware store on the way home from work but I have the envelopes at home? A debit card and tracking amounts spent keeps us going in the right direction.

13 Kelly June 10, 2009

This is my great fear- I don’t like carrying around that much cash because I get worried it would get lost, and if I leave the envelope at home then there’s not that much point to having an envelope in the first place!

14 Heather June 10, 2009

We switched to a cash-only envelope system eight months ago, and I don’t see us going back. I have specific categories: groceries, eating out, entertainment, gas, hair/makeup, auto maintenance. And then I get my own personal spending money each month, which I just stick in my wallet. My husband needs an entire envelope system for his spending money, because otherwise he’ll spend it without paying attention. His categories are: food, gas, haircut, golf, gifts/miscellaneous.

We also have separate online checking accounts. One we pay all our bills from; the other is for gifts and clothing, and is a sinking fund. I’ve estimated our expenses for gifts for every imaginable holiday/occasion and person we give to throughout the year, and put a price tag on those gifts. We don’t have exceptionally large families, but at $25 per gift per person we’re still saving $300 each month for gifts. Kinda crazy, which is why we stick to $25 gifts per person. Knowing how much we spend total helps us keep that in perspective.

I spend MUCH less now that we use cash than I did when I used our debt card. Once the money is gone, it’s really gone. Plus I’m physically able to see how much money I’ve spent, and I know whether I need to adjust the amount I’ve budgeted for that month. (Normally, if I don’t have enough for a category I cut back on spending, rather than adding more money to that envelope. But that’s me.)

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15 mom June 10, 2009

Well, Kelly mentioned the envelope system in a blog a little more than a year ago and I latched onto it right immediately as a way to save for some things like a new computer. In the first place, I rarely use a credit card. Just for on-line purchases like airline tickets and books, and when I am traveling. Otherwise, I pay with everything by check or cash. I make sure to have at least one or two twenties in my purse at all times. When I have to break one…for whatever reason…gasoline, or a treat…the change is gone. Poof! The actual coins go in my coin jar. The ones go in an envelope that must add up to $15 (I add three twenties one at a time) every two weeks. This is for the person who cleans my house every other week. I have three roommates and classes in my home, so household help like this which may seem extravagant to some is a necessity for me because I also work full time. that was the ones. The fives go in an envelope for my new computer. In 18 months, I have saved $1565. I hope I can buy a new Mac laptop at the end of this year or early next year. And a new ink jet printer. The tens go in another envelope which is labeled “Gardening.” This is for the person who comes at random times every month or two and tries to wrest control of the jungle in my backyard and along the creekside. Believe me, I try. But I can’t keep up with it on my own. So, to sum up, if I have to break a twenty, even for a dollar or two…there goes the whole thing. Good for fattening up the envelopes quickly and good for making me think twice and yet again about breaking the bill in the first place. I guess the envelope method for me is a wonderful savings plan (aside from the ones I have at the bank) as opposed to a spending plan.

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16 Kelly June 10, 2009

Hey everyone, it’s my mom!!

17 Kelly June 19, 2009

And she sent me some more info in an email:

I think each person has their own reasons for devising their own envelope system. My household expenses are pretty much the same each month…mortgage, utilities, phone, groceries for myself and my pets, &c. So, I rely on my regular sources of income to pay for these…my paycheck from the bindery where I work, my roommates’ rent, money from teaching and taking commissions and/or selling my work. When I say these are regular sources of income I mean they come in each month, but not always in the same amounts.To cover the fluctuations in income, I keep a very healthy reserve in both my personal and business checking accounts.

I am old fashioned and out of date because I pay for everything with either cash or by check. I use my credit cards only for travel purposes or buying books on-line.

Where does the envelope system fit? It pays for the extras I don’t have in my budget. For example, I have someone who cleans my house every other week. And I have a gardener who comes every few months. And, I want to make a major purchase of a new laptop and inkjet printer. Each of these gets their own envelope and the envelopes get fatter as time goes by.

18 Denise C. June 10, 2009

I’ve never used the envelope system. I do keep a “cash jar” in one of our kitchen cabinets that holds all loose change and some cash (usually no more than $20).

If I have cash, I too will piddle it away…a little here…a little there…(usually in coffee for me, or a treat for the Munchkins.) 🙂

I *have* been wanting to track our spending habits (more so mine than my husband’s). I am debating on pear budget (online) or just doing it old-school with a pen and notebook.

19 marci357 June 10, 2009

Cash for me. $300/month goes in my wallet. For groceries, gas, garage sales, gifts, and grandkids…. the “Gee” account I call it. I usually have money left over at the end of the month – and then another $300 goes in the wallet to join whatever is left.

Anything big, and prebudgeted, goes on the credit card, paid in full when the bill comes.
Recurring monthly utility bills and insurance bills (twice a year) and property taxes all come out of the checkbook.

No envelopes – just the same $300 per month in cash for the past 10 years or so.

20 Kelly June 10, 2009

The ‘Gee’ account- too funny! But don’t you get worried about losing that much cash?

21 Denise C. June 10, 2009

Wow Marci, $300 cash in your wallet!!!!! I get nervous when I have over $20. I am always worried about losing it, or getting mugged, or gasp- having my smallest Munchkin tearing it to SHREDS!!! :0

22 marci357 June 10, 2009

There’s only $300 in there the first of the money – then I go grocery shopping and fill the gas tank so am down to under $200. How can I lose the cash if it is in my wallet??? My wallet is ALWAYS in my front jeans pocket – ie, always under my personal control. Grandkids can’t get at it there 🙂 I refuse to carry a purse because it’s a pain, it’s easy to misplace, it’s easy for someone to walk off with it, and finally it makes you a target. But actually, I don’t worry about mugging at all – I live in a very small town and it’s even fairly safe walking the neighborhood at night.

And so what if I did get mugged or lose the cash? It’s only money – it can be replaced eventually.

If I am going out of town to Costco or Grocery Outlet for a ‘stock-up” run, I will usually have an extra $200 along – cash, of course. Keeps me from overspending as I know I can only spend the cash I have on hand. I don’t worry about coffee shops or eating out – I’m just too frugal to do either one.

23 Kelly June 19, 2009

It’s only money- too true, and something I need to learn. I’m just paranoid about losing my wallet, even though I never have. (Shouldn’t have said that, should I?)

24 marci357 June 10, 2009

@Denise – If your little munchkin tears it to shreds, take the pieces to the bank. As long as there is over 1/2 of the bill still there, they will replace it. 🙂

25 Nancy June 10, 2009

Lots of excellent information in the comments. Thanks Kelly for providing the means for such a worthy discussion.

I’ve thought many times about utilizing the envelope system but never have. Hubby and I each get ‘weekly allowance’ money to spend as we wish, regular bills, groceries and gas are paid with the checkbook. I’ve gotten good at sticking w/in limits for groceries so I don’t feel like I need to have cash to keep me on track in that dept. Our oldest daughter, now 16, has a part-time job and also does baby-sitting. She started using the envelope system about 5 months ago and has stuck with it consistently. I’m so proud of her. I have a tin in my kitchen where I set aside money each month for some future purpose; right now it’s collecting for back-to-school expenses in August.

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26 autumnesf June 11, 2009

We have been using the envelope system for 8 months and its perfect for our family. We have our categories of envelopes, but we only carry our spending money on us at all times. And that money is meant to be what we allow our selves to use however so its not important.

You do have to be disciplined in that you don’t make unexpected stops or trips…because you have to plan to leave the house with that certain money…and the left overs go back in the envie when you get home.

If we forget the money…we are out of luck. Trust me…it will only happen once or twice and the inconvience of forgetting will help you double check yourself. And not just having the cash on you stops all kinds of little trips where you end up spending uselessly.

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27 ellen June 24, 2009

I struggle to pay all our bills which are mostly medical. The costs keep going up as we are dealing with a lifetime medical need. Right now I am paying $15 to each medical bill. Last month one hospital sent us to collections and another Dr. is threatening to with only about $33 left on that bill. Some weeks we are left with $45 for groceries and life after the mortgage,gasoline for my husband’s commute, car payment on a car that does not run; we owe about $350. more on it) and approximately $ 2,000 on a debit bill which added up several years ago while we were struggling before our larger home was sold. I ride my bike which was a gift to me, but I wonder if anyone has suggestions how to get through as I don’t see medical bills listed on the topics above. thanks for any ideas

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