Where I stand on the envelope system.

The envelope system is great for staying on budget, but what do you do when you still want to responsibly use debit cards or a mix of debit and cash for some of your expenses? The answer is a digital envelope system, and I’ll show you step by step how to set it up.

Here’s where I stand on the envelope budget system: Use one. Either digital or on paper. Some form of envelope system is essential to a household staying accountable for where your money goes. It is the ONLY way to stay on budget. 

The Cash Envelope System

A lot of debt free frugal people promote the cash envelope system. Basically, you go to the bank (weird, I know), take out cash (remember those little green pieces of paper?), and distribute it into envelopes representing each budget category.

You carry these around and use them to pay for expenses like groceries, clothing, gas, and entertainment throughout the month.

The obvious drawbacks are that you could be carrying around a sizable amount of cash at any given time, and not everyone is comfortable with that. It also takes some coordination as to which spouse has which envelope at any given time.

The advantage is that if you run out of cash, you cannot buy anything else. It makes it really hard to go over budget.

Studies have also shown that people who use cash tend to spend less than those that use a debit or credit card. There’s just something more painful about seeing those dollars leave your hand.

Digital Envelope System

Luckily, there are a couple of completely free and awesome digital “envelope” systems that work very well if you’re not ready to part with your debit card just yet.

Please note, I’m not saying you should continue to use credit cards. Do the Dave and cut those babies up!  If you want to take control of your finances (and I really hope you do) you need to break the cycle of relying on consumer debt.

However, there are a couple of reasons we’ve decided to stick with using plastic on a day to day basis instead of a 100% cash system.

1. Tracking Expenses

Knowing where your money going on a daily or weekly basis is essential to staying on budget. If you only look at your spending at the end of the month, by then it will be too late to change the course of your spending. You’ll already be over budget!

For us, using a digital envelope system makes it easy to consistently track our expenses. (We personally use mint.com) If my husband forgets to bring home a receipt, no big deal, it’s already automatically logged on our Mint account before he gets home.

For some of us, the automatic nature of a budgeting app can work better than paper or a  spreadsheet.

Learn how to use a digital envelope system to manage your budget, while still responsibly using credit cards or debit cards.

2. Full Financial Picture

We also like using plastic with a digital envelope system because it allows us to add all of our accounts to get a full (and automated) financial picture. With Mint or Mvelopes, you can see your transactions and balances for debit cards, checking, savings, loans, even paypal the moment they happen.

You can log into one account and see everything that’s going on with your money. I don’t know about you, but at this point in life, I need things to be extra stupid easy or I’m not going to deal with it. If I had to log into every one of those individual accounts, find the log in names and passwords, probably type it in wrong twice, it’s just not going to happen.

I’m all about keeping it simple, and the digital envelope deal is simple. Once you get your account set up, every transaction is automatically categorized. (You can change it if the software guesses wrong, and it learns your preferences over time. You can also split transactions into different categories if necessary.)

You can enter all your budget categories and amounts. It shows you exactly how much you’ve spent and how much you have left in each category. The little bar turns green when you’re on budget, yellow when you’re about to meet your budget, and red if you go over. My two year old could understand it, which let’s be honest, is about the mental capacity I’m operating at some days. Mommy brain!

3. Alert, Alert!

There are about a million different alerts you can have sent to your email, text, or mobile device to update you on your financial situation and alert you if there is any unusual (aka irresponsible) spending or if you are about to go over budget.

This is a great fail-safe to keep you on track with your budget. Like a hungry toddler, your finances will not allow you to ignore them for long. Sure you can choose to over-spend anyway, but you will no longer be doing so in blissful ignorance.

Learn how to use a digital envelope system to manage your budget, while still responsibly using credit cards or debit cards.

Start Today

That’s about it. If you are sick of going over budget every single month. You need to get started on some kind of envelope system. Put the kids in front of the TV (oh ya I just said that!), sit down with your spouse for half an hour, and get started today. Do not let another month go by without taking control of your budget!

Photo credits: cash envelopekid watching tvmint screencut creditpiggy bank

shannon Clark, LIFE & FINANCIAL Coach

As a mom, I know what it's like to feel exhausted, overwhelmed by life, and inadequate to meet my children's needs. But I also know you don't have to stay there.

As an author and coach, I've had the joy of encouraging more than 9.1 million moms to find forward motion with their faith, family, and finances — without the frenzy.

Will you be next?

19 thoughts on “Where I stand on the envelope system.”

  1. I’m definitely on the side of keeping the cards, unless you’re really serious and good at the real envelope system. It’s so much easier and more accurate to keep track of what you’re spending now with online banking and budgeting websites than getting out cash and trying to keep track yourself.

    • I agree. Keeping it all on online banking is a good place to see every thing. I am not sure Cindy hoe secure mint is or if it is free.

      • I’ve used Mint for a couple of years now, and it is completely free. And based on my research, I’m satisfied that it is as secure as any online banking I already do.

  2. We pay our card off twice a month and never carry a balance that would be charged interest and then use the cash we get from points to pay on my student loans, so keeping the card works for us.

  3. Ironically enough, just last week my husband and I converted from a digital envelope system back to cash. We only use our debit card for gasoline (pay-at-the-pump) and online purchases. When using cash in person, we put our receipts in the envelope when the cash comes out, which yields instant tracking. When making online purchases, we move the cash from the appropriate envelope to a “go to bank” envelope that we then redeposit. It sounds tedious, but we’re at the bank once a week anyway (hubby’s income is all cash/personal check).

    We’ve been debt free for years, but still occasionally struggle with budget. There is something about using plastic (even if it is only debit) that makes it easier to spend money. Cold, hard cash is what works best for us.

    • Oh this makes so much sense! Maybe a tiny bit more complicated, but really it sounds like it would work so well. One of the things holding me back from using a cash envelope system was wondering how it would work in instances when we do have to make purchases with a debt card, like online. I love the “go to bank” idea. Thank you so much for taking a moment to share your variation on the system.

    • Hi Elizabeth! I think you can only decide that for yourself. When I signed up, I read their entire privacy and security policy, and I felt very comfortable with the measures they have in place. I also realized that with all the different online accounts I already have for baking, loans, etc that this was probably not going to be the straw that broke the camel’s back so to speak. I’m planning a post showing how we use mint to manage our budget in more detail soon. I think I might contact them directly for a response on this question.

  4. I am on the side of keeping the cards. In this day and age, too many things require a deposit of some kind that can only be done with a credit card – renting a car, renting a specialized tool for a home improvement job, special ordering items, etc. Keeping a credit card with a small to zero balance helps at these times, because to use my debit card with the visa logo, usually requires a longer wait time for reimbursement, and I don’t have access to those funds if needed. Not to mention a credit card comes in handy in case of those emergencies we don’t plan for.

  5. I just wanted to say that I am loving your posts! We have been seriously struggling for a couple of years since I decided to stay home with my kids. I am anxious to get out of debt so that we can breathe a little! I plan to keep my cards just in case, but I plan on taking my card numbers off of my computer and freezing them in colored water so that I can’t read the number! That way we still have them in case of emergency, but they aren’t easily accessible. Thank you for all of your hard work and I can’t wait to put your good advice to use!

  6. For 2 1/2 years we’ve used the cash system. Once we run out of cash we’re done. We plan ahead and if we don’t have the money we don’t buy it. We use bank cards if we need to make online purchases. We currently don’t have a ton of purchases that we need to keep track of so it’s easy for us to track.

  7. I am in the “no card” camp but it took me twenty years to be completely convinced of this. I got into trouble with credit cards at least twenty years ago. Used the envelope-all cash system to get out of debt….started thinking that I was smarter now and knew the pitfalls and could handle it and got a couple of prepaid credit cards to “rebuild my credit” only to fall into the same credit trap (five kids needing shoes, casts, braces, etc.). I had to work through garnishment and a whole lot of other unpleasant situations to realize that I don’t have a big enough income to afford debt, interest or risk. I have worked on the cash only system for 10 years off and on now…I’m debt free, purchase everything with cash (I still use a debit card occasionally) and am building savings and retirement on an income of only $22k a year.

    • Thanks for sharing your story Angela! It’s so interesting what you say about not having a big enough income to have credit. What a good insight. I was just reading that until the 70s, credit was only available to the wealthy.

  8. You mentioned that all of your banking transactions automatically load into Mint. It seems like I tried Mint a few years back and had trouble with my local bank syncing with Mint. If I have to manually load transactions I can already assume I’m going to have some problems. I’m not going to ask who you bank with, but is it a larger/national bank that integrates with third part software easily?

    • Yes, I do bank with a large national bank, so I think that makes it more likely that they’ll support it. However, I think the easiest thing would be to login to your account (it’s still there unless you deleted it) and just try again to see if you can link your bank or not. They may have added it by now. Other software that links bank accounts would be Quicken and Every Dollar, however, this feature isn’t free with either of those, so I’d try Mint first.

  9. I used the cash envelope system for years, but more and more the best deals are online so I switched to a digital app. I have found ProActive Budget to be far superior to any others. Your envelopes are replaced by a prepaid VISA debit card. You have to approve each spend on the app before you can use the card. This forces you to look at your category balances before you spend. After the purchase, the balance is automatically updated. No spend is possible if the balance is lower than the purchase amount.


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