Saving Money with the Envelope System

You’re Terrible at Saving Money (and How the Envelope System is Going to Save You)

A lot of us are terrible at saving money. It’s hard–it takes persistence and the will power to not spend next month’s rent on “window shopping impulses”.

Instead of continuing to live in constant money trouble, never knowing where your funds will come from or where they’ll go, let’s talk about a tried-and-true budgeting system that will save your paycheck from yourself. Let’s work on getting you out of debt, getting you in control of your dollars, and on track to actually do something with your money instead of spending it on eating out, clothes you never wear, and junk no one cares about.

Let’s talk about the envelope system.

The Envelope System – What It Is

Simply put, the envelope system is a mostly-cash budget system that involves dividing your money into separately-labeled envelopes (groceries, rent, utilities, etc). Most importantly about the envelope system: you can’t spend more than what you have in each envelope. If you have $60 for groceries allotted for the week, you can’t dip into utilities or gas. When you’re done, you’re done.

Here’s how to set it up: every paycheck, get friendly with the bank teller, because you’re going to withdraw every penny (you can leave in money for rent and other online bills, but we’ll get to that later).

From there, you’re going to take it and divide it into the separate envelopes. Beforehand, you’ll need to write down where every dollar goes – if you have a random $20 in your pocket, I promise you you’re going to spend it. Every dollar needs a name. Where’s it going – rent? Gas? Savings?

Again – every bill you have needs an envelope. Here’s a sample list of the average worker’s bills:

  • Rent
  • Gas
  • Groceries
  • Utilities
  • Entertainment
  • Clothing
  • Misc
  • Gym

One of the best parts of the envelope system is that is leaves you a lot of room for savings. Whatever isn’t included in the envelopes needs to go in the last envelope: savings. Try and put as much money as you can in this. This is where you want to put as much extra as you can – over time, you can even try and make other envelopes smaller and cut part of “entertainment” or “miscellaneous” into smaller parts to have more in savings.

Personal and Business Use

The envelope system works for both personal and business use – let’s say you’re saving up to start a business. If you’re a serious entrepreneur like Rich Gorman, who’s always looking to invest and start the next big thing, you’re going to need a solid savings. Instead of saving for around the house, label your envelopes with business expenses, like web design, freelance writer fund, legal fees, etc.

Instead of trying to save up on your own for important things like marriage, a new business, even for next month’s rent, stop trying to make your broken system work. Try this proven system to effectively start saving money and actually make it work.

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3 thoughts on “Saving Money with the Envelope System

  • I have been using an electronic version of the envelope system for years. I started out with budget categories (or envelopes if you will) on an excel spreadsheet and used that for years. Then I upgraded a few years ago to the Easy Envelope Budget Aid ( which is a free website and app that uses budget envelopes to help you track your money. I try to stay inside my envelopes but sometimes have to borrow from another envelope or a future month. Maybe I should just jump to cash envelopes, but I like the convenience of the electronic envelopes.

  • I have been a user of the “cash-envelope” system over the years. I agree that it is a very good technique regardless of whether you are living paycheck-to-paycheck or make a good income but tend to blow your money. In my opinion, you should only have envelopes for categories that are used frequently, such as Groceries, Dining Out, Entertainment, Auto Fuel, etc. And, never carry all your envelopes with you; leave all but what you will need hidden at home.

    Anything that is more of a periodic expense, like Auto Repair, Vacation, Medical, etc., should be saved in what I call a Future Capital Expense account. I describe what I do in detail in this post:

    I LOVE your idea to apply the same technique to business. For a budding entrepreneur, that would be a great strategy.


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