By Kelsey on October 11, 2011 11

Q&A: Using Cash Envelopes

Q. I’m wondering if you have any words of advice or suggestions about making the cash system work. We are transitioning to it right now and it is bumpy going. I know you and Eric have been doing it for awhile and I was hoping you might have some insights or suggestions as to how to make the process easier, having survived it yourself. I feel like I’m herding cats, trying to keep track of all of it!

–Chris, a reader in Des Moines, Iowa

A. We only use cash for two categories: food (eating out and groceries) and hair care. We wanted to “start small” with two envelopes and we ended up not adding more. These are two things that always get purchased in person and can require tipping, so it’s great to have cash on hand. We also love the fact that we often don’t have to wait for change or to have our debit card run at restaurants — we can simply leave money on the table and walk out.

If you’re using more than a few envelopes, I can imagine it could be overwhelming at first. It will get easier with time, and it may take three months to get a good feel of how much money you will need to put in the envelopes at the start of your pay period. We budget $100 for food each week. We used to do $90 but found that the extra $10 was a little more accurate and a lot less stressful.

When we started out, we wrote on the outside of the envelope when we spent any money from that envelope (see photo above), so we could see how much we had left. Now, two years later, we have a good idea of what it feels like to spend $100/week, so we don’t need to write it down anymore. (As a somewhat-unrelated side note, in the past month we’ve also been using more coupons, so our food money has gone farther and we’ve been able to enjoy more what we call “quick-service” meals. Yea!)

Other Envelope Categories We’ve Considered

  • Date night ($10/week)
  • Household supplies: laundry detergent, toilet paper, paper towels, napkins (there is no set amount for this on our budget; it gets added as needed)
  • Toiletries: personal and beauty products ($10/week, but if we don’t use it all we don’t save the difference for upcoming months, we just use that money for other things)
  • Babysitter (for those of you who have kids, how much would you recommend for this category?)

As with food and hair care, it would just be nice to have the money for those categories set aside in cash so we don’t go over (like we commonly do with toiletries) or feel guilty about spending the money (like I do when I buy things that seem unnecessary, like perfume).

What We Don’t Want or Need Envelopes For

  • We don’t have a gas envelope because, lazily, that would mean we’d have to go inside to pay for our gas. Instead we budget a near-accurate amount using an Excel form that Eric made to help us predict how much money we will need to fill up our vehicles between paychecks (depending on if we’ll be traveling or not).
  • We have a joint account that our paychecks go into and all our bills are paid out of, and then separate accounts with our personal allowance/clothing/shopping money. I am an online shopper and our cash envelopes should obviously be only things we buy in person.
  • Our entertainment money ($30/month) gets spent more often online via iTunes for songs or audio books and less in person like at the movie theater, so we keep it in our bank account rather than in cash.

>> For envelopes, we use Dave’s starter envelope system ($13) and recommend it. I believe it comes with the Financial Peace University kit, or it can be purchased separately on his website.



I love my husband, my kids and the Internet.

  1. In addition to the food and hair care envelopes, we also have envelopes for our blow money, gas, clothing, baby sitter, and auto repairs {if we know they are coming up and can pretty well estimate the amount}. Our main reason for a lot of envelopes is to make one large deposit and not have to make all sorts of entries in to the check register. It makes balancing the checkbook a very simple task. However, we get paid once a month, so this makes it very easy to only have to stop at the bank once a month and divi up the cash. If we got paid weekly, or even bi-weekly, I could see that being more of a challenge for us. It’s almost a fun game to have that wad of cash at the beginning of the month and see how long we can make it last.

    We try to use small “mom & pop” shops for vehicle repairs, because if you use cash you can usually negotiate a lower price so that they don’t get charged by Visa/MasterCard for sliding your debit card. And in general, they are lower priced, it seems.

    For the babysitter envelope, we just sit down right before the beginning of the month and discuss events that we know are coming up that we might need a sitter for. Then we either decide if that event is “necessary”, if it is not and just something we are choosing to do, we pool our blow money for a babysitter. If it is “necessary”, we figure out the approximate time and rate of the sitter. But, we are also blessed with a lot of family close by ready and eager to watch the boys, so that has saved us a ton in that area.

    Gas, yes, it is such a pain to go inside and pay. But… our driving is more spontaneous, with me being at home with the boys, there are days where we don’t go anywhere, and days where we might spend up to two hours in the car. Having the cash envelope helps us better monitor where we are at with the gas budget and whether or not we have the extra dollars for a trip to DSM or Chicago to see friends, or just need to slow down on driving for the month.

    • Thanks for sharing, Mary. Do you use your blow money every month? If not, is there a “reward” for not using it? Like, do you spend it on a dinner out? If we don’t use ours (half of the time we don’t because if things come up and we’re doing well that month with our current baby step goals then we typically just cash flow them), we split it and it goes into our personal accounts for clothing. We could put it toward something we want (iPhones, bikes, etc.), but it would hardly feel like a dent since we only allow $10/week for blow money. We’ve found we’re kind of selfish and need lots of rewards for doing well :)

      Do you have a set amount for gas each month, or does it vary how much you allow yourself to spend depending on what’s going on that month? We see gas as a necessity and don’t really tailor our behavior to our budget, but rather the other way around. It’s kind of strange because we don’t do that for any other category, except maybe toiletries. It seems we buy those in a weird pattern that isn’t as predictable ($40 one month and $15 the next), which would make an envelope useful.

      Also, what is balancing a checkbook? Ha!

      • Okay… balancing a check book begins with debits and credits. For every credit there must be a… Kidding, kidding…

        Gas budget: Set each month. We just use cash so that we are constantly aware of how much we have left and can pair down on some activities (for example… I still really enjoy going back to our previous town to go to MOPS and see friends, but if there’s only enough gas money to last for the local stuff, I set that aside). SO… if the end of the month came and Jon didn’t have enough money to drive to and from work, we’d adjust, but also re-evaluate the following month. Were there trips we could have done without? That type of thing. If we know we are going to be traveling we just estimate that into a “vacation” budget and all of the money for the trip goes in to one envelope (gas, food, hotel, etc).

        Yes, we use our blow money every month. And I am TERRIBLE. It is my biggest flaw in the whole process. Jon can make his last all month long and I can barely make it to the middle of the month… But, we do not budget for entertainment or dining out, so that is always what blow money ends up going towards (or in my case, usually too many trips to Target).

        We also already give the boys their “commission”. They don’t realize it yet, but we do set aside a certain amount for them each month and it gets used for things like: Childrens Museum admission, a ride on the carousel at the mall, lunch on the run, finger paint, play-dough, etc. Or, a pack of stickers to keep them busy during a grocery shopping trip :)

        We don’t really have a reward system for doing well. Jon hates to spend money, so he would win every time ;) We have made a lot of life changes {that weren’t always easy} in getting to debt free, but we have also treated ourselves a couple of times and become more realistic about setting a budget that we can really stick to.

        • So your blow money is separate from Jon’s…nice. Our entertainment money kind of is like that…if we don’t use it on something together, we split it at the end of the month (so I can see Britney Spears when she’s here and Eric can go golfing).

          We have made a lot of life changes as well since taking FPU, and we do treat ourselves to vacations every year and some other fun things, but we try to keep it all in balance.

  2. …and by deposit, I mean “withdrawal” oops.

  3. babysitter: ZERO because you have tons of awesome friends in town who would gladly watch your little bundle at no charge ;)

  4. For the baby-sitter, I don’t live in Des Moines, but I do live in Iowa. For our baby-sitter, for full-time, and if paid by the day instead of the week, it would be $125– on the highest end. One option for child care is to use the Flex Spending system- similar to a Health Savings Account, but for child care– so the money comes out of your check pre-taxed, you pay your provider, turn in receipts, and then are repaid. I sort of like this in a weird way because it makes me feel like my paychecks are less, so I feel poorer, so I’m more careful with my money– and then the refund is direct deposited into my account and it’s more likely to go towards bills or stay in my account. I’m a weirdo like that though. (Perhaps lying to myself about my money is a bad sign…)
    You’ll probably want to evaluate your own situation to see if you prefer this or the Child Care tax credit (not sure if that’s the real name of it…)

  5. Our in-home sitter for Mylie charges $130 a week and we pay her every Friday. The center that Myah and Maysen go to charge $694 a month per child (this varies by age and gets a little cheaper as the child gets older) so we pay them at the beginning of the month. Those are pretty easy costs to budget because they don’t vary. We do FLEX for child-card, but you can only do up to $5000 a year, and we pay $1300 in just one month so that doesn’t cover all of it, but it helps to not have to pay taxes on that $5000.
    We hardly ever have a baby sitter, but when we do it just comes out of our general account. I’m with Mary, though, I think it’s a good idea to look ahead at the calendar to see if you need a sitter that month. We pay $6 an hour for three kids. Usually, though, we plan our dates around when mom and dad are visiting and use them as sitters. Always know that I’d be more than happy to watch your kids whenever you need me to! Family definitely helps keep these costs down.
    Thanks for sharing all of this information!!

  6. Hey Kelsey,
    What do you and Eric do about your large purchases that you only make a few times a year such as life insurance, car insurance,etc.? Do y’all just put that money into savings and take from that? My husband and I have envelopes for these specific things and vacation and christmas gifts. Love y’alls blog!

    • Hey Jesse, Our car insurance, Christmas gifts and other big expenses that come up once a year are budgeted for monthly. We simply add up the total for the year, divide by 12 and put that much on each budget. We don’t use envelopes for this, but have a separate tab on our spreadsheet that we keep track of things like this.

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