The Envelope System, also called Cash Stuffing by TikTokers, is a budgeting technique that makes use of cash that’s organized in envelopes to encourage more thoughtful spending.
It’s a budgeting system primarily used by our grandparents (or great-grandparents), but it’s experiencing a resurgence in this cashless society, thanks to digital wallets, fintech apps with budget categories, and trendy TikToks.
Key Takeaways
- Using cash prevents a lot of pitfalls that lead to excessive spending
- Seeing your envelope slowly run out of cash is a great reality check
- You’ll need to set aside some time every month to stuff your envelopes
- Cash Stuffing can be done digitally using fintech apps or spreadsheets
Envelop System for Beginners
Step 1: Track Your Income
This is as simple as it seems especially if your income is consistent. If you’re not using the digital version of cash stuffing, this is as easy as withdrawing the money from your bank account. Otherwise, you’ll need to input your earnings for the month in your app or spreadsheet.
Step 2: Categorize Your Spending (using envelopes)
You can do this by coming up with your own categories, but you can also use the Federal Trade Commission’s (FTC) spending categories:
- Housing. This spending category includes rent, mortgage, housing insurance, utility bills, internet, and phone bills.
- Food. This spending category is for groceries, household supplies, and money spent on eating out.
- Transportation. This spending category is for public transportation expenses, gas, parking expenses, tolls, car maintenance, car insurance, and auto loans.
- Health. This spending category is for medicine, health insurance, and other health expenses.
- Personal and Family. This spending category is for child care, child support, cash gifts to family, clothing, shoes, laundry, entertainment, donations, and other personal expenses like beauty care.
- Finance. This spending category is for bank fees, prepaid cards, phone cards, and credit card fees.
- Other. This category includes loans, savings, and other expenses that don’t fit into the categories above.
Step 3: Stuff Your Envelopes with Cash
Now that you have your spending categories and their associated envelopes, you’ll need to allocate the appropriate amount of cash for each category. You can base your budget on your spending the previous month. Or you can use budgeting methods like the 50/30/20 Rule and Zero-Based Budgeting.
Step 4: Stop Spending When the Envelope is Empty
It’s going to be tempting to dip into the other envelopes once you’ve emptied one, but this system only works if you stick to your budget for each spending category. And while using the envelope method through digital means is more convenient, seeing cash slowly run out is a visceral experience that can stop you in your tracks.
Related article: What is a No-Spend Challenge & How It Works?
Summary
The envelope system can be time-consuming and inconvenient (if you’re using cash), but this is by design. Spending has become way too easy and much too convenient which is why we find ourselves getting into spending sprees way too often.
Using cash for all expenses is definitely not for everyone, but if it works to keep you on track then go nuts! But there’s no shame in using the envelope system through digital wallets. It doesn’t really matter which method you prefer as long as you’re taking steps towards financial freedom.
