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How To Use Envelope System For Budgeting Plan

Updated on November 10, 2012


Dave Ramsey’s envelope system is one way that you can learn to budget your money and have a little fun at the same time. 

The envelope system is also called the zero-based money management system because basically you spend until you get to zero!

Let’s see how it works and then decide if this is a budgeting system you can live with. 



Track your expenses for at least a few weeks to get a feel for how you’re currently spending your money. This is outside of course your ‘regular’ bills such as mortgages, car payments, credit card payments, and utilities.

Target any big areas of fluctuation such as grocery bills, clothing expenses, entertainment and break them all down.

These are areas where people usually end up overspending and where you can cut costs.

The envelope system can help you look at your spending habits and not fix them per se but adjust them to where they can become more manageable.

Now, get some real honest-to-goodness envelopes and set up some categories.

Maybe your envelopes will say 'entertainment' on one, 'grocery bills' on another, 'clothing' on yet another, 'going out to eat' on another.

You can make up as many envelopes as you want.

Now put some real cash in those envelopes! Based on what you have been spending but perhaps more importantly what you know you SHOULD be spending or want to spend in those areas, put that much cash in each of the envelopes....maybe $100 for dining out, maybe $50 for entertainment, maybe $100 for clothes and gosh knows how many dollars for groceries.

You’ll need to determine if that money is going to last you a week or 2 weeks. If you get really good at it, monthly expenditures are great for the envelope system. Starting out though, you’ll need to think in terms of shorter time frames until you get the hang of it. Baby steps and all that!

Now spend! Yes, I said spend......not hoard. This is the way that you’ll learn how to budget your money.

This is a very visual way of seeing how to discipline yourself when it comes to money and spending habits.


Zero means exactly that - zero. If you go out to eat twice in 1 week and you spend the $100 cash you have in the envelope, that means you can’t do that anymore until you get paid and add more money to the envelope. No ifs, ands or buts about’re done going out!

Same goes with the clothes envelope. If you spend your cash down to zero for that envelope, you don’t have anything else to buy with so you’ll just have to wait for a refill of the envelope next payday.

Dining Out


What if you don’t like cash spending? Well, you could still write the number of dollars on the envelope and then use your debit card to spend that much money.....but ONLY that amount of money.....period....and no fudging!


What if you have money left over in the envelope at the end of the week or 2-week period? Good for you!

You have several choices then….you can keep the money in the envelope because you earmarked it for that.

You can also put it back into savings because you did good! You saved money rather than spent it!

Or you can roll it into another envelope where you project you might be able to use a little extra cash.


I think this is an excellent way to teach kids to budget as well.

You can do the same on paper or on the computer but somehow feeling the money, seeing the actual amount that you put into the envelope for a certain aspect of your spending life and then staying inside those lines makes you more dedicated to learning appropriate spending habits.

One of the major reasons that people get into debt is spending beyond their means.

By employing a zero-based money management system, you can’t possibly overspend because once it’s gone, it’s gone!

Of course, employing other frugal spending methods in the background also helps you save money and keeps you from going into debt.

The envelope system can work for trimming a budget that has a few flaws in it and give you a great amount of satisfaction in the process.


If you have thoughts or experiences with the envelope system of money management, please leave your comments and input here to enrich the article!

Or if you have other systems that you use to live within your means, please share them.

Learning to budget is an ongoing affair in life or should be.

There are always new ways to learn to budget or spend our hard-earned dollars.

Whatever works to keep us solvent is what matters but sometimes, it's nice to look at something as boring as our budget in a new light.

Wishing you every success along the budgeting highway of life~!


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    • akirchner profile image

      Audrey Kirchner 7 years ago from Washington

      Thanks so much Darski - it is a kinda sorta fun way to save~!

    • Darlene Sabella profile image

      Darlene Sabella 7 years ago from Hello, my name is Toast and Jam, I live in the forest with my dog named Sam ...

      Hello Audrey, this is a great system and I for one, have never heard of this. This would work for couples or familys, not for me. My money is already spend each month and not enough to budget. Awesome hub, and useful love & peace darski

    • akirchner profile image

      Audrey Kirchner 7 years ago from Washington

      Thanks so much for stopping by viryabo - your idea sounds great on stopping smoking! Will have to pass that one on to my son!!!

    • viryabo profile image

      viryabo 7 years ago

      This is a fantastic idea Akirchner, and one i'm putting to practice immediately.

      Many years ago when i TRIED to stop smoking, i'd put the amount i spend on cigarette packs every single day into an envelope. The idea was to save my money for something more important and beneficial. Not a slow killer LOL!!

      Anyway it worked, for a while at least. I saved up enough to buy a microwave.

      I love this ideas of a strict form of budgeting.

      Thanks for sharing this.

      Rated Up.

    • akirchner profile image

      Audrey Kirchner 7 years ago from Washington

      I love it too because it makes sense to even me, NOT a numbers girl!

    • Pamela99 profile image

      Pamela Oglesby 7 years ago from United States

      Audry, I love Dave Ramsey's outlook on finances too. You have a good plan in this hub which I think would work well for a lot of people.

    • akirchner profile image

      Audrey Kirchner 7 years ago from Washington

      Thanks for stopping by alinadelea!

    • alinadelea profile image

      alinadelea 7 years ago

      good article ,thanks

    • akirchner profile image

      Audrey Kirchner 7 years ago from Washington

      Thanks for stopping by, Hanna~! I like this system!!

    • Hello, hello, profile image

      Hello, hello, 7 years ago from London, UK

      You have got a great idea here. Thank you, Audrey.