This is a guest post from Ashley Patrick of Budgets Made Easy.

As a Mom of three, Ashley was able to payoff $45,000 in debt in 17-months using the Dave Ramsey envelope system to budget. 

Wanting to help others do the same, she is now a Ramsey Solutions Master Financial Coach.

I asked Ashley on to The Ways to Wealth to write a simple guide to budgeting using Dave Ramsey’s cash envelope system. 

I’m happy to say–she went above and beyond my expectations

Here’s Ashley…

Cash envelopes can be scary for some people at first.

It certainly was for me.

I was afraid of losing it, which I did once.

I was afraid of it getting stolen, it hasn’t.

I was afraid of losing track of each category, which I did.

Yet, despite all those reservations, I now prefer it over debit for most categories.

Using cash envelopes takes some getting used to but once you get in a routine of using it, you will like it better.

It doesn’t have to be complicated or time consuming. It will become a habit and routine after a couple of months. The important thing to remember is that it will help you stick to your budget.

The cash envelope system works with a zero-based budget. If you aren’t familiar with doing a zero-based budget, check out this step-by-step budgeting guide.

The Dave Ramsey Envelope System Explained

The cash envelope system is a way to keep track of spending in certain categories in order to stay on budget. Your budget is the foundation for all of your finances. Everything starts with a budget.

Using the cash envelope system helps you stick to your budget and stay on track for your financial goals. The envelope system is just a way to organize your cash and stick to each category.

Basically, you get cash for certain categories. When the cash is gone, you stop spending until it’s in the budget again to replace it.

Why use cash instead of debit, isn’t it the same?

Studies have actually shown that you spend 15-20% less with cash over a card, even a debit card. There is a different feeling psychologically when you have to hand over cash compared to swiping a card.

It’s too easy to swipe a card without feeling it. Cash is a lot harder to hand over.

Do I have to use cash for everything?

No, you do not have to use cash for everything. Generally speaking, there’s no benefit to paying your normal monthly bills with cash. That would be very cumbersome and risky to pay it that way. You could certainly do that if you like and it works better for you. However, if you prefer to pay your bills online, you can keep doing that.

You want to pay cash for things that you may be having a hard time with overspending. You can also use cash for sinking funds.

Sinking funds are just a savings fund for expected expenses, like Christmas, vehicle registrations and expenses, yearly expenses or just a general savings fund for things like house repairs or kid expenses.

Some examples of categories for cash envelopes:

  • Groceries
  • Eating out-fast food and restaurants
  • Entertainment
  • Pocket money
  • Gifts
  • Christmas
  • Clothing
  • Animal expenses
  • Miscellaneous expenses

These are examples and you may have different categories.

Benefits of using cash?

Like I said before, you spend less with cash overall. It’s easier to stick to your budget. Which helps you reach your financial goals quicker and easier.

One study found that consumers that use credit cards focus on the benefits of a product rather than it’s cost.

Another study found that those paying with a credit card were willing to spend twice as much on a product than those using cash.

Study after study shows that you will spend more with a credit card because it is psychologically different than using cash. Using cash SAVES MONEY!

It helps keep you from overspending, if you follow the rules of using cash envelopes and stop spending. You do have to have some self-control but it may take you screwing up to get you on the right track.

It can also get you a discount. A lot businesses will give you a cash discount, especially small businesses. They don’t have to pay the credit card fees that way and it’s less risk for them. They don’t have to worry about the charge being disputed later. It helps small businesses as they don’t have to pay the fees and they get the income immediately instead of waiting for the credit card company to pay them.

You should always ask for a cash discount because most places will give you one. Hospitals and doctor offices will even give you a cash discount even with insurance. It never hurts to ask.

Cons of using cash envelopes?

There a few disadvantages of using cash but they really don’t outweigh the benefits.

One is having to go to the bank every payday in order to get all the increments that you need. Once you get in the routine of doing this, you will feel lost when you don’t make it to the bank.

You have to sort and keep track of what cash you have on hand. This only takes a few minutes because you will know what you need for each category because it will be in your budget.

It can also be easy to forget what the cash is for if it’s just a general category and not labeled for something specific. I do this at times. I will see I have so much in the kids category and then I spend it on the kids. Then I remember that I needed that for a certain activity or event. This is easy to prevent with a sticky note, paper clips or index cards. Just label what it is for so you don’t forget.

It could get stolen or lost. I have lost cash and that was because I wasn’t using envelopes. I then bought a cheap coupon organizer and I never lost any again. It could get stolen but so could your debit card or wallet.

It’s important to keep track of your personal belongings. It’s easy to get complacent and not pay attention to what is going on around you. I was a police officer for 10 years and con artists and thieves are everywhere. Only carry the cash that you need at that time to limit your risk.

There are risks to carrying cash but you can limit the risk by being proactive and taking the necessary steps to prevent yourself from being a victim.

What if I waste it?

You could be tempted to spend all the cash on things it wasn’t meant for. This is just where you have to decide what is important to you. It’s important to define specific goals for your money.

If you are tempted, put index cards with the cash and lay out what it is for and only what it is for. Even put a picture of your goal. You can even write yourself a giant note saying “Don’t waste this!”

Stay focused on your short and long-term goals. It can be tempting to spend all the cash frivolously but stay focused and remind yourself you are a grown up and you can do this. If you do screw up, figure out a way to earn the money back. Sell something, adjust your budget and take out fun money for a month.

If you make it uncomfortable, you will be less likely to do it again.

If after 3 months or so, you are still wasting cash, you can consider alternatives. The point of using cash is to stay on budget and focused on your goals. If cash is not helping you do that, consider the other options available.

What should I do with money leftover at the end of the month?

A common question I get asked about the cash envelope system is what to do with money leftover at the end of the month. It’s really up to you what you do with it.

You can move it to another category. You can leave it where it is and have extra if needed for the next month. You could also adjust next month’s budget so you add less if it’s not needed. Or you can just carry a surplus in case you need it later.

If you are consistently having extra leftover in one category, you should evaluate the amount you are adding to that envelope. If you don’t need that much then adjust it and move it to something else.

What do I do when I’m out of cash in an envelope?

When you run out of money stop spending in that category. There may be times that you just forgot something and need to pay for it anyway. You can adjust your budget and take it from another category. Just don’t make a habit of this. Your money will disappear without you knowing where it went.

The important thing is to not use debt to cover it. So, if you have to move money around in the envelopes, it’s not that big of deal. Now if you are having to move money around all the time, you should sit down and evaluate your budget more.

Still be proud of yourself for using cash and not a credit card! That is a huge accomplishment and better than 80% of the population!

I shop online, how do I use cash for that?

There are a couple of ways you can handle online payments. Some people suggest getting Visa gift cards but I rarely find an online merchant that will take them. So, I don’t recommend this.

You can keep a strict record of what you spend in that category and take it out of the cash to put back in the bank.

You can also set up different online bank accounts for those categories. Then use a debit card from that account. I do this for some categories and it’s easier than cash for some things that I want to buy online.

The biggest thing is to not use debt to pay for it and that you have the money to pay for it at the time of the purchase.

What if my spouse does some of the shopping?

This is another very common question. It does take some practice but it will take teamwork. You will have to still be intentional with the cash and not waste it. If you know your spouse will be going to the store, give them that envelope. Only give them the cash for what they need.

You can also have your spouse keep a small amount of one category in case they need to stop and get milk on the way home. The minor inconveniences will outweigh the benefits in the long run. You can also have your spouse carry a small amount of miscellaneous money in case they need to grab something without the envelope.

What envelopes should I use?

There are many different options for cash envelopes. I used a dollar store coupon organizer for years. It held up really well surprisingly. Once I had my fully funded emergency fund, I ordered a custom cloth envelope wallet from Etsy.

cash envelope system wallet red and light green

There are paper envelopes you can order straight from Dave Ramsey. You can also print off free templates from Pinterest. I have also used plastic pencil binder holders. I have also used manilla envelopes. It really doesn’t matter what you use as long as it helps you stick to the budget. Whatever works for you if fine.

There are even envelopes that have coupon dividers that are perfect for cash envelopes. It doesn’t have to be a literal envelope. Anything that keeps your cash organized for different categories works.

What are alternatives to cash envelopes?

There are some alternatives to cash envelopes but remember that cash will help save you money overall. Some alternatives include using multiple bank accounts for certain categories.

Some people will put the money on a gift card instead of cash. You can also use an app or spreadsheet. There are several budgeting apps including Dave Ramsey’s app, Everydollar, YNAB and Mint are other popular budgeting apps.

You could also keep track of categories in a spreadsheet. This is more work but if that works for you, then it works.

See also: Best Free Personal Budget Templates

What I use

I use a combination of all the options I have talked about. I have a spreadsheet, multiple savings funds, and a cash envelope wallet.

cash envelope system wallet red and light green


Since I started working at home, I haven’t been able to get to the bank every payday. I now have to drive 12 miles out of my way to go to the bank. This has made it harder for me but I am still able to do it or make adjustments.

I keep cash for local shopping. I use a card for online shopping and track it in my spreadsheet. I have multiple savings accounts for long-term and periodic funds.

The important thing is making sure you stay on top of your spending and the budget. However you do that with success is good!

Summary: Dave Ramsey Envelope System

Cash helps you stick to your budget and not overspend. This is vital for staying on track with your money goals. It helps you save money and pay off debt fast. It keeps you from going further into debt.

Using cash envelopes doesn’t have to time consuming or complicated. Once you get in the habit of doing it, you will likely prefer it over debit or credit cards. It doesn’t matter what system you use as long as it works for you.

We all learn and process information differently. As long as your cash system is working for you, then keep doing it. If your system is not working, reevaluate what you are doing and why it isn’t working.

The important thing to remember is to keep trying. Don’t give up because you failed one month. It takes up to 3 months to build new habits. Give yourself some time and keep going.

Ashley Patrick is a Ramsey Solutions Master Financial Coach and owner of Budgets Made Easy. She teaches people to budget and save money in order to pay off debt and live the life they want.