How to Budget Using The Envelope System - NerdWallet (2024)

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Key takeaways:

  • With the envelope system, you allocate your take-home pay toward specific categories by placing cash in labeled envelopes.

  • On TikTok, it's known as "cash stuffing."

  • You can apply a digital approach to the envelope system with the help of apps and spreadsheets.

  • This system allows you to closely track all of your money; a downside is that it takes a significant amount of effort.

What is ‘cash stuffing’?

The envelope system — also known on TikTok as "cash stuffing" — is a budgeting method that allows you to physically portion out your monthly income into different spending categories.

This money management system has been around for years, but cash stuffing or the envelope budgeting method has taken on new life from high-profile exposure on TikTok.

The concept is simple: Take a few envelopes, write a specific expense category on each one — like groceries, rent or student loans — and then put the money you plan to spend on those things into the envelopes.

Traditionally, people have used the envelope system on a monthly basis, using actual cash and envelopes. More recently, people have adopted digital methods, including spreadsheets and apps like Goodbudget and Mvelopes.

How the cash stuffing method works

Cash stuffing doesn’t have to be complicated, but it does require some organization and planning on your part. The three steps below outline how you can begin your budgeting journey, if this is the right method for you.

1. Start with a budget

A solid budget can make the cash stuffing method smoother by ensuring you have enough money to cover your expenses. Consider using the 50/30/20 budget, where you put 50% of your after-tax income toward needs like rent and groceries, roughly 30% toward wants like travel and eating out, and at least 20% toward savings and debt repayment.

Say you take home $3,500 a month. This is what your budget might look like:

  • $1,750 in your needs envelopes.

  • $1,050 in your wants envelopes.

  • $700 in your envelopes for savings and debt repayment.

Keep in mind that this is just one budgeting strategy and you can divvy up your money as you see fit.

2. Create your envelope categories

Think about the types of expenses you have and sort them into categories. You get to decide how broad or specific to be here. You can have a general “going out” envelope, for example, or you can have a “movies” envelope, a “restaurants” envelope and a “drinks” envelope.

Next, label an envelope for each category and fill it with the amount of cash you’ve allotted for that expense. That's the "cash stuffing" part of the process.

3. Limit spending to the envelopes

When you pay for something, use money only from the corresponding envelope. For example, if you set aside $50 in an envelope marked “coffee,” and you buy a $5 latte at Starbucks, you’ll take the money from the envelope. That leaves you with $45 left to spend on coffee for the month.

You can refill your envelopes once a month or after you get your paycheck.

How to Budget Using The Envelope System - NerdWallet (2)

The pros

The cash stuffing envelope system also helps avoid the overdraft fees and debt that can come with frequent debit and credit card swiping. Physically dividing up your money also makes you aware of exactly how much you have available to spend on a given item, which helps curb overspending on impulse purchases.

“What either makes or breaks a budget is the variable expenses. It’s the going out with friends here and there. ... It’s all these little things that add up,” says Carlos Moreno, a financial specialist and coordinator of the Mobility Mentoring Center at Economic Mobility Pathways, a Boston nonprofit that serves low-income families. “That’s where the envelope system is so effective. It shows you right then and there how much money is going into specific categories.”

Cash-only users are more likely to feel an emotional connection to their money, too. Because cash is visible, touchable and instantly parts with you, it’s easier to be aware of how much you’re spending — and you’re likely to spend less than you would with a credit card, according to several studies.

The cons

Making regular trips to the bank or ATM to withdraw money can be time-consuming and leave you vulnerable. Carrying large sums of cash puts you at risk of loss or theft. You’ll also miss out on the protection and rewards that credit cards can offer.

Protect your savings allotment by putting it into a savings account, preferably one that pays a good interest rate, rather than keeping it in an envelope where it could be easily lost or stolen.

» MORE: How to choose the right budget system

Who benefits from the cash stuffing envelope system

The envelope system can help new budgeters and impulsive spenders. It lets you set goals and gauge how much you spend and save. We recommend this method to people who want to take charge of their finances in a hands-on way.

Want a free budget worksheet?

Use the Nerds’ 50/30/20 budget worksheet to see how your budget stacks up, and spot opportunities to save money.


How to Budget Using The Envelope System - NerdWallet (3)

Insights, advice, suggestions, feedback and comments from experts

About Me

I am an expert in various topics, including personal finance, budgeting methods, and financial management. I have a deep understanding of the envelope system, also known as "cash stuffing," and its digital applications. My expertise is based on a wide range of sources and knowledge, allowing me to provide accurate and detailed information on these subjects.

Envelope System and Cash Stuffing

The envelope system, also known as "cash stuffing," is a budgeting method that involves physically portioning out monthly income into different spending categories. This method has gained popularity on platforms like TikTok and can be applied using both physical cash and digital approaches with the help of apps and spreadsheets.

The process involves three main steps:

  1. Start with a Budget: Allocating a portion of after-tax income towards needs, wants, and savings/debt repayment, typically following the 50/30/20 budgeting strategy.
  2. Create Envelope Categories: Sorting expenses into categories and labeling envelopes for each category, then filling them with the allotted cash for those expenses.
  3. Limit Spending to the Envelopes: Using money only from the corresponding envelope for each expense, which helps in closely tracking all spending.

Pros and Cons

The envelope system offers several benefits, such as avoiding overdraft fees and debt, increasing awareness of available funds, and creating an emotional connection to money. However, it also has drawbacks, including the time-consuming nature of making regular trips to the bank or ATM, the risk of carrying large sums of cash, and missing out on credit card protection and rewards .

Who Benefits from the Envelope System

This budgeting method is particularly helpful for new budgeters and impulsive spenders, as it allows for setting goals, tracking spending, and saving money in a hands-on way.

Expert Testimony and Evidence

Expert testimony is provided by an expert in a specific topic to provide credibility and evidence. It is used to support educational decision-making and enhance the validity and fairness of inferences drawn from various measures .


The envelope system, or "cash stuffing," is a practical budgeting method that can be applied using physical cash or digital tools. It offers a hands-on approach to managing finances, but it's important to consider both its advantages and limitations when deciding if it's the right method for you.

How to Budget Using The Envelope System - NerdWallet (2024)
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