I have seen a little bit about the "Envelope System" for spending, and while I think I have the rough idea of it, how does it work in detail.

I know there is http://www.mvelopes.com/, but this site will neither tell me how it works nor explain how much they want. (I won't sign up with them at all until I know how much money they want.)

I want to know generally if it is a system to help you learn to budget, or if it is more than that. I would like to know specifically what you are supposed to do.

Do I put actual cash in an envelope? Do I pay only cash for things? What about interest from keeping money in a bank? What about having my house robbed? How does it differ from an spreadsheet or mint.com in tracking my money?

Does anybody do it? Is it as simple as this page makes it seem?

4 Answers 4


Basically the idea is you put the exact amount of cash into each envelope and set those aside for a specific purpose. Then when you go to accomplish that specific purpose such as grocery shopping or whatever, you take the corresponding envelope and use only the money that is inside. It is sort of a way to train yourself to follow budgets very strictly. Many people stand by this method and it really is as simple as the website you linked to. As far as tracking, this method really doesn't track anything aside from what you note down about where the money is going.

Others have moved on to using ING sub accounts to do the same thing but in a digital form.

  • What is an ING sub account? Something from the ING Group?
    – gerrit
    Commented Nov 28, 2022 at 12:44

I'll chime in and say that my wife and I thought this was a really dumb idea, until we tried it. I was keeping track of everything in my checkbook ledger, but having the physical money in the envelopes really does work! We thought it would be more hassle than it's worth, and there were hiccups the first month or two, but in the end we both agree this is what started our movement towards responsible money management and debt reduction.

We have the following Categories:

  • Date Night
  • Fast Food
  • Pets
  • Groceries
  • Our Baby

Obviously, ymmv, but the point is to take any categories in your budget that are hard to budget for, as they vary from month to month, and just set aside an amount form your paycheck, in cash, for each one of those categories in an envelope.

What I've noticed is that by putting the money aside up front, it's MUCH easier to stick to the budget. We'll often shuffle money around in the envelopes if priorities change for a particular month as well, so rather than taking money away from an extra payment on a debt or our planned savings transfer, which would have been our default action pre-envelopes, we can just move $XX from Date Night into Groceries if we have to, hence, planning out how we'll spend our money, budgeting, has gotten a LOT easier since adopting this system.


Budgeting is really about planning your spending. Many programs and most advice will tell you that budgeting is tracking your expenses. That's only the first part.

Track your expenses for about a month to figure out what you plan to spend in the future.

Your budget is then just a list of things you're going to buy or pay for with the money you have at the moment. I recommend creating a budget every time you get some money, keeping an eye out for future expenses you may need to save for.

The envelopes are for those expense that you are going to use cash for. The envelopes make you plan to spend a specific amount of money, the money you put in them and no more. Envelopes protect you from overspending.

I use "envelopes", that is, paperclips or sticky notes or different sections of my wallet, to organize my cash.

I use cash for things I'm going to buy in person: gasoline, groceries, eating out, the movies, home improvement stuff, buying birthday presents. These are my "envelope" expenses.

I use one check a month to pay rent. I use my online banking to pay most of my bills automatically (like school loan and Netflix). And I use the actual websites of those companies who I want to pay manually (like utilities, b/c those change every month).

Does that help?

  • No need to @me, but thank you for your reply. I think the paperclip thing in interesting.
    – MrChrister
    Commented Jan 29, 2010 at 18:09
  • A month seems way too short. I use envelop budgeting and I find it works very well for groceries, but I find it much harder for rare purchases like furniture, a new fridge, or emergencies. It took me several years of tracking expenses before I was close to having a take on those. How do you handle those?
    – gerrit
    Commented Nov 28, 2022 at 12:48

The envelope method is a way of saving money while balancing your spendings. Basically it works based on personal budgeting technique. It is used widely by people to have a financial discipline with themselves.

According to this simple article, it breaks down to following steps,

  • Identify your income First, identify how much money you can make for a month. This includes all the sources including salary, business income etc
  • Settle for an estimate Divide all the income into spending categories. This list should include all your expending withing that particular month. Try to make it super simple.
  • Create envelop and stack them with cash Assign each category from the above step with an estimated cash amount. You can use a physical envelope or virtual ways like multiple bank accounts.
  • Spend only within a specified category You only take money from the specified category. If you're running out of one category try to limit/cut your spendings in that category. No overlapping of categories allowed.
  • Pay debt or save extra cash If you manage to limit your spendings within one category to remain cash at the end of the month, save them or pay debth with them.

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