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Our Financial Freedom: The Envelope System

Our Financial Freedom: The Envelope System. I discovered this system that got our spending together called the #EnvelopeSystem , this helps us see the actual cash and keeps us from over spending. Basically it works like this: Total up your monthly income. #frugallivingideas #frugallivingtips #frugalliving #savingmoneytips #savingmoney

When I quit my job and began staying at home with my children, I needed to get a lock down on our expenses. Our income dropped by 50%–so we pretty much needed to get it together!

Couponing helped but I always felt the that I never actually “knew” how much I was spending every month. Then I discovered this system that got our spending together called the “Envelope System” This helps us see the actual cash and keeps us from over spending. Basically it works like this:

  1. Total up your monthly income
  2. Write a list of your monthly expenses and then write each expense on an envelope.
  3. Every time you are paid, split the money amongst the envelopes, make sure all expenses are covered
  4. Throughout the month spend like you should to cover the expenses
  5. If you find that you have run out of money in one envelope–you must take away from a different envelope-to make up the difference. OR you can simply do without.

For us..any left over money goes into our savings.

To Begin the Envelope system is pretty simple.

You must know your budget for the month. I usually sit down a couple days before the 1st and calculate everything that we are expecting.

Our family only has 5 different envelopes all labeled:

  • –Grocery
  • –Stockpile
  • — Clothing
  • — Entertainment (this has little separate envelopes inside a larger one labeled: Spending Money, Date Night and Eating out)
  • –Gas

I stick to a Grocery budget and never overspend because of this. Also, my Stockpile money goes to any great deals that I may want to stock up on (ie. Juice, Pasta) and leaves me feeling confident about saving money. This also challenges me to find ways to pay less out of pocket so that my stockpile money goes further.

Using cash makes the world of difference. You think twice about using cash vs using a credit card or your debit card. Cash just seems more valuable–so it tends to move slower.

Any other bills that we have come directly out of the bank via online bill pay. This is extremely hopeful because we do not need to sit and think about writing checks. We set the bills for the month–they are never late and we don’t have to worry about not having the funds to pay for them because we may have “overspent” on dinner last night. 😉

My list of envelopes above are expenses that I know that I can control. Things such as Electric and water–fluctuate and I can only do so much to control those expenses–so I leave that to the bill pay. You will be surprised at how much you save by using this method–I was shocked to realize how much we used to spend as a two-income family!

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  1. Michele

    October 3, 2011 at 3:35 pm

    Great timing on this post!! I was just thinking we needed to move to a cash method. One question – how do you deal with the bills that are paid direct out of the bank but are not the same amount each month? Like electric. Thanks!!

  2. Michele

    October 3, 2011 at 3:37 pm

    I thought of one more question. How do you deal with buying stuff online? I try not to use my credit cards so have used my debit card or paypal that comes directly out of my checking account. If you have already taken all your spending money out, do you put money back in to cover these purchases?? Thanks again!

  3. Carrie

    October 3, 2011 at 3:40 pm

    This is the same method that Dave Ramsey teaches.. He has a great program but one of the key things I like that should be used is the Envelope system with your children. Children learn with 3 envelopes, a savings, tithing and spending.

  4. Josie

    October 3, 2011 at 3:47 pm

    For utility bills I set a “average” for summer and the AC–we sort of have a set price that we know that we won’t go over. So we use that for the summer months. If we are under the budget–it goes right back into the savings.

    As far as online purchases–I pull from the envelope that I would pull from if it were in-store shopping. and put into the bank at the end of the month.

  5. Josie

    October 3, 2011 at 3:47 pm

    This is where I got this from 🙂 Love Dave Ramsey!

  6. Natasha E

    October 3, 2011 at 4:37 pm

    I don’t do this system persay but it was interesting to note that when I was off on temp disability we were financially better off that when I was working fulltime and not because I didn’t earn enough.

    When I was working I didn’t want to cook so we spent on eating out, buying stuff to make ourselves feel better. I would spend $10+ on lunch a day.

    I’m going back to work next week but part time. Lets see if the expenses stay under control

  7. jo

    October 3, 2011 at 4:49 pm

    this is great! i’ve only been couponing for the last 4 months (unemployed for the last 8 months =)) and i’ve been trying to figure out how to better account for the savings/spending aside from just showing the bf what “he” got for free or almost free that day =)

  8. silvia in Corona

    October 3, 2011 at 4:59 pm

    we have had a budget set for the last year, your right about how much you spend when you have a two household income. When I think of it, I want to kick myself in the butt. I now view the layoff as a blessing because it forced us to review our finances and use coupons. I use cash for my groceries, every payday I pull cash out and stick to what I have on hand.

  9. Olga Navidad

    October 3, 2011 at 8:34 pm

    Thanks for sharing this info. Me being a single mom with no financial help from the father can really use this method of savings. I have used cash for my grocery but been using debit also I could just kick myself lol. I still need to learn on using coupons and saving way more money. When is your next class Josie? I have a few co workers who wants to take your class. Thanks….

  10. Amy

    October 3, 2011 at 9:25 pm

    This question is for all those who use only cash for groceries. Do you actually keep a running total as items go in your cart? I do create a grocery list soley based on what is on coupon that week, which keeps the grocery bill way down. But I find it hard to stick to just $50 per week, as many say they do, especially if I coupon at multiple grocery stores, where inevitably I spend at least $25 per store. I do a cash system, but I am constantly going over my grocery budget. Any ideas?

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  12. Josie

    October 4, 2011 at 1:12 am

    @Amy – I do have to visit many stores in order to keep my budget in tact. One thing that really keeps my budget low is buying milk at CVS. I use my ECB’s to purchase milk and that already knocks my grocery budget down by $6. ECB’s that you may get after a “free” deal is the best way to do it.

    Also, I have a pretty stocked up Stockpile–so my $50 a week consists of fresh fruit and meats..almongst other fresh items if needed. If you have a good stockpile you will begin to see that your spending will become less because you will start eating out of that. Hope that helps.

  13. n3mbe

    October 4, 2011 at 8:04 am

    I started couponing in July of this year and I still go over budget and it’s giving me a headache trying to figure out why and how? I will start this system this month and hope it will work for me. Thanks Josie for sharing this.

    BTY, how much do you allocate for your stockpile? I noticed when I do my audits by the end of the end, I spent a lot on my stockpile?

  14. Jen

    October 4, 2011 at 8:29 am

    Hi everyone! We also use an envelope system. However, ours is digital. We use our debit card for everything, because our bank offers rewards points to do so. We calculated that by the end of the year we will have a free airplane ticket with our points. Anyway, the envelope system that we use is called Easy Envelope Budget Aid, They have a free program that limits you to 10 envelopes or you can purchase larger programs for a minimal fee. The program is android base so it can be accessed through your android phone or any computer. You create envelopes and a budget to follow. Your envelopes are then listed on your main page and everytime you purchase something you add a transaction to deduct it from the correct envelope and account. The account is associated with your checking account, savings account, cash just whichevber you happen to take the money from for that purchase. My husband and I can be shopping at the same time and will see how much is left in particular envelopes to use right away. It warns you when you are spending too fast. This ends up being our check register as well so no more writing down transactions. You do not put any of your personel info in this you just name everything and set up as you see fit. I don’t think I did an awesome job explaining it but their website does do a great job. When we first started using this we weren’t very good about instantly adding transactions but now we are and it works out awesome! I love when there is money left in my grocery budget because of couponing and I can transfer it to see my savings grow.

    • sabijo

      May 12, 2015 at 8:26 pm

      Thanks for sharing this! I’ve been wondering about a system like this…

  15. Briana

    October 4, 2011 at 8:35 am

    We have been doing the envelopes for a few months now, and I love it! I do have more envelopes then Josie, cause I am crazy OCD when it comes to finances and I catorgarize things more. I have kids activities, fuel, cleaning, grocery, pets, entertainment, personal care, household misc (for things like printer ink), clothes, dinning, and some others. Our amounts change each month also depending on what we are planning. Like this month I put more in the clothing budget cause my son needs new pants. And last month I put more in activities cause I knew I was going to be signing my boys up for some classes through the city for afterschool. We are lucky enough to have enough flexability in our budget to do this. Also, I roll over by overages to the next month, so if I have a large overage then I put less in for that month. At the end of the year we plan on putting whatever is left into our savings or do something special for the family.

  16. lori schuette

    October 4, 2011 at 11:08 am

    @Jen – Dear Jen,

    I am going to look in to this it sounds great! Thanks so much for taking the time to post I’m sure it will help many people.


  17. kat

    October 4, 2011 at 12:54 pm

    i luv earning points on my credit card too much…. but i have been trying to find ways of money awareness >.<

    tx for sharing ur method

  18. rebecca

    October 4, 2011 at 3:42 pm

    Great post. I’ve been looking for a way to be more aware of where our money is going. I usually use my credit card to pay for everything…. but I’m not a maniac swiper, spending all this money that I don’t have. It would be really difficult to give up earning points on the credit card – which is always paid in full every month. =(

  19. Mallori

    October 4, 2011 at 8:43 pm

    @Jen – Thank you! I’m going to check this website out! I like using my debit card for everything, so i can keep track of my spending online!

  20. Lisa

    October 5, 2011 at 11:11 am

    Josie, So…your grocery budget is $50/week? How big is your family? And I’d also love to know what your stockpile budget is. Thanks 🙂

    • Josie

      October 5, 2011 at 11:33 am

      I have a family of 5! My stockpile fund is $20 a month. 🙂

  21. Sheree

    October 5, 2011 at 6:50 pm

    I was wondering where you got you envelops. I am a little OCD and I am tired of my paper ones riping.

    • sabijo

      May 12, 2015 at 8:32 pm

      Same here! That is one reason I stopped this method. Another reason is b/c I am a little scared that I will loose my cash or that someone will see a juicy envelope in my purse and steal it and then I have lost all that money!!

      Another reason I stopped is b/c sometimes I would be out of the house and needed to stop for an errand but hadn’t brought the envelope along…Or, my husband would be out, and I’d ask him to pick up something on his way home, but he didn’t have cash, just the credit card. It takes discipline to stay true to this system!

      But I am reconsidering b/c it is easier to NOT spend cash you you don’t have in an envelope than to not spend when you have that plastic burning in your wallet, calling to you, saying, “its OK, go ahead, I’m right here baby….” lol…

      I would love to know if there is a particular binder or folder item that you recommend to keep everything organized and handy. Especially if it is something small enough to keep in a purse…

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  25. Daphne

    February 12, 2013 at 3:18 am

    I soo need to do this. Went to see Dave Ramsey last year and have yet to start this. And we need to because like you, we r a single income family and I stay home with the kids. Question…does ur grocery weekly budget include diapers/wipes and household items like detergent, cleaning supplies and paper goods-tissue, paper towels? And also, do u put money in each week or all in at once for the entire month?


    • Josie

      February 13, 2013 at 7:57 pm

      Daphne, my weekly grocery DOES include diapers but a lot of the time I have already stocked up for a few weeks.. so its more like a once a month addition. I do not have other household items in my budget because I have already stockpiled most. We have a $10 per week stockpile budget. I stockpile as much as I can with that $10.. if it happens to be that there is a good deal on cereal one week were I pay $1 per box or less, I stock up on that.
      The next week, there might be a diaper deal where I can get diapers for $3.50 or less.. so I will stock up on that. After a few months, you will see that you have a nice stockpile going and you will not need to budget household items into your grocery budget. Hope that helps! 🙂

  26. carla l.

    August 21, 2013 at 3:32 pm

    our family uses “virtual” envelopes on excel……….wow……..what an eye opener…………..i had no idea how much we were spending. this is such a fantastic idea. i cannot wait to see how much we can save by the end of week four 🙂

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