Does The Envelope System Really Work? My Two Cents

Dave Ramsey’s envelope system is likely something you’ve heard of before, as it isn’t new. You might even be on Dave Ramsey’s Baby Step 1 or Baby Step 2. So does the envelope system really work, or is it just a bunch of nonsense?

According to Dave Ramsey, It’s one of the most radical and effective budgeting approaches.

Let me explain how the process works if you are unfamiliar with it.

does the envelope system really work

Defining The Envelope System

The Envelope System is a method of keeping track of your budget categories by putting your money in envelopes.

All you have to do is check your envelopes to see how far you’ve deviated from your budget.

One of the reasons we overspend, according to Dave Ramsey, is that we rarely know when we’ve hit our budget limit.

So it’s for this reason that he created Dave Ramsey’s Envelope.

It’s a valuable tool for staying on track with your budget.

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How The Envelope System Works 

1. Compartmentalize your budget and assign an envelope to each category you’ve created. 

The envelope system should be used for expenses that consistently exceed your budget.

Restaurants, food, entertainment, clothing, and petrol are all examples of typical budget components. 

You can allocate an envelope to any budget area you like.

Here are a few areas Dave thinks are often neglected: 

  • Car maintenance 
  • Entertainment 
  • Haircare and cosmetics 
  • Gas 
  • Restaurants 
  • Gifts 
  • Health 
  • Groceries 
  • Debts 

2. Settle on an appropriate budget amount. 

Let’s assume you’ve noticed that you frequently overspend on items like entertainment, groceries, and other necessities.

Find ways to cut your budget and stick to it.

If you’re married, make sure your partner is fully informed about your budget objectives and any changes.

3. Allocate a physical envelope for every budget category. 

Let’s say you’ve set aside $500 every month for entertainment.

When you earn your first paycheck, Dave Ramsey recommends taking out $250.

Then, when you earn your second paycheck of the month, you’ll get another $250. 

All that money should be put in a specific envelope. On that envelope, write “entertainment fund.”

So it follows that your $500 entertainment budget is in that envelope.

The approach is that simplistic. 

Make sure your budget allows for each category’s expenses.

It would help if you also were strict about sticking to your budget at all times.

I know how difficult it is to stick to a budget!

However, rather than taking money from your account, it will leave you with a more rewarding financial situation.

Dave points out that one of the most common mistakes individuals make is not returning their change to the envelope.

Avoid making this error. 

Dave further suggested that you shouldn’t take funds from the Entertainment envelope unless paying for entertainment. 

So even if you’re at the movies and forget to bring the envelope with you, you’ll have to retrieve it. 

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4. Be STRICT about spending only from your designated envelopes. 

Keep in mind that once your cash is gone, it’s gone! If you have a date but have spent all of your money, it’s best to stay at home. 

One of the better techniques to help you regulate yourself and your spending habits is to use this one.

However, there are certain drawbacks to using cash envelopes as well. 

Let’s look at the advantages and disadvantages of employing the envelope system.

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Envelope System Pros 

1. It’s foolproof (given that you stick with it)! 

The best thing about the envelope budgeting technique is how easy it is to use.

It’s impossible to overspend if you only pay for goods with cash and you run out of money.

So for a good reason, the envelope system has been around for a long time.

2. It will teach you to be disciplined. 

Whether it’s our spending habits, eating habits, or work productivity, we all need discipline in our lives to be better.

The more rigidity you develop, the easier it will be to take responsibility for other aspects of your life.

3. It’s handy for emergencies. 

Many people carry cards instead of cash, which might be problematic if an emergency arises.

Though the money in the envelope system isn’t intended for emergencies, it’s possible to use it for one.

For instance, if your vehicle breaks down in the middle of nowhere, you have a way of getting home. 

4. It makes money tangible again. 

When you use cash instead of cards, the concept of money becomes much more tangible.

As you probably already know, it’s easy to impulse-buy with credit cards.

You’ll be more mindful of your budget if you use envelopes because you can see it decrease as you spend. 

5. You’ll be more mindful of spending. 

Back when I used Excel to budget, it was always a monthly surprise to see where my funds went.

When you utilize the envelope budgeting approach, you are more inclined to consider each purchase. 

When you see your money vanish before your eyes, you’re motivated to be less wasteful.

In point of fact, when paying with cash, customers spend 10% to 15% less.

6. Goodbye, overdraft charges! 

Have you ever had your bank charge you an overdraft fee?

You’ll be less likely to overdraft and be charged an outrageous fee if you ditch your card and use cash instead.

7. It is easier to stay on top of payments. 

When you use the envelope budgeting approach, you pay outright and don’t have to keep track of anything.

Conversely, if you use a computerized tool for budgeting, it’s all too easy to forget to enter purchases.

Because I lost receipts frequently, the budget I tracked electronically was off by hundreds of dollars each month. 

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video titled personal finance pros are wrong

Envelope System Cons

Envelope System Cons

1. Using actual cash means you have to go to an ATM to withdraw it. 

I try to avoid going to the bank or the ATM as much as possible.

It’s just another errand to add to my already hectic schedule as an entrepreneur.

However, if you follow the envelope budgeting method, you’ll need cash from somewhere to fill your envelopes.

2. Goodbye, credit card rewards! 

I used to rake up enough points with the top cashback credit cards to make $250 a year.

Since you won’t be using your credit card as frequently, you won’t earn credit card rewards. 

3. It might not be easy to get everyone in the household on board. 

Some folks are fiercely opposed to paying with cash. I can’t blame them for preferring the simplicity and convenience of a cashless life.

However, for the envelope budgeting system to function, the entire family must be fully committed to it. It won’t work otherwise.

4. It’s not as simple as it seems. 

I understand that the procedure I outlined appears to be very straightforward, but you may encounter perplexing situations. 

Where do you get the money if you buy $30 worth of groceries and $30 worth of medicine from Target?

You’ll likely have to get it from two separate envelopes. 

As you figure out how to navigate your categories, you’ll go through a learning curve.

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The Psychology Behind The Envelope System 

Virtual or conceptual funds are easy to spend because you don’t feel your wallet getting thinner.

If you transact with physical money, it’ll “hurt” once you have to let go. 

Envelope budgeting is also one of the most intuitive approaches to pre-spending money management.

You owe it to the fact that it requires you to plan ahead for your monthly financial needs. 

While this technique of budgeting necessitates more work upfront, it tends to be more reliable. 

The ultimate result is that you do less math after your envelope budget is set up and your envelopes are packed. 

You’ve established spending boundaries for yourself so that you don’t have to keep track of your money in your mind.

You’d never have to strive to recover from unintended excess in spending continually. 

What I Really Think About The Envelope System 

So, what are my genuine thoughts on the envelope system? I’d say this method is out of date now that technology has expanded and become a large part of our lives.

Still, according to Dave Ramsey, the envelope system works better with physical cash purchases than with online purchases.

Yet even if Dave believes it is the best option for budgeting, that may not be the case for everyone. 

In fact, there are other approaches for budgeting that may be more effective than what he suggests.

It’s still wise to use the envelope method. You just have to adapt it to your style of budgeting.

Of course, it’s going to be a little more challenging to do so. 

Make a budget for each envelope and stick to it; don’t go overboard.

Also, on the outside of the envelope, write down how much you’ve spent and how much you still have. 

If it isn’t something you’re interested in, there are now apps available to assist you, thanks to advances in technology.

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The Best Envelope System Alternatives 

Since the envelope system is one budgeting approach, why not look into additional budgeting strategies to aid you?

You could use apps, spreadsheets, or paper, for example.

Budgeting can be accomplished in a variety of ways.

However, one innovative and popular method of budgeting is to use apps. With the betterment of technology, there are now apps that can assist you in budgeting and debt repayment. 

For instance, there’s the Savvy app.

The Savvy Debt Payoff Planner

The Savvy Debt Payoff Planner is best known for its debt payback calculator, but it can also be used to budget. 

What makes this app distinct is that it uses a zero-based budget.

It can be motivating to observe as your debt liberation date approaches and your debt decreases.

It keeps everything organized for you while also assisting you with your budgeting.

It’s effortless to use and could become your budgeting best friend.


The next app I can suggest is Mvelopes. This is a budgeting app that works on the principle of the envelope system. 

Mvelopes lets you set aside some money and spend what you have in every category.

You have a few solutions if the funds in a category run out.

You have the option of not buying the item or deducting it from a different category.


The last app I’d recommend is Goodbudget.

Users may track their spending by allocating money to different categories using the mobile app and website.

For a little fee, Goodbudget users can upgrade to a more complex system.

Another option for budgeting is to use an Excel spreadsheet.

If you enjoy being very organized, using a spreadsheet as your budgeting strategy may be an excellent fit for you. 

Excel will make it easier to set up and calculate your revenue and expenses.

Many people like how you can view everything from your budget in Excel and how there are many templates available. 

If you still want to write your budget down, the paper technique may be the best option for you.

The advantage of planning on paper is that you have complete control over the budgeting process. 

You can make your own financial planner and personalize it.

This is ideal for beginners who are just getting started with budgeting and like to budget using pen and paper.

Lastly, if you like the idea of the envelope system but think it’s too bulky, you could try the clip system. 

This method is comparable to the envelope method, except it’s a little less chunky.

Instead of using envelopes, you’ll utilize clips, which will allow you to see the separate bills. 

For distinction, it’s better to use clips of various colors.

And, much like envelopes, once a category’s money is depleted, you’re done spending. 

Related Reading: How To Make Your Money Work For You – Click Here To Learn.

Final Thoughts 

Dave Ramsey’s envelope approach is a highly effective tool for combating overspending.

If you stick to it, they’ll help you keep track of your money better than before. 

Make the envelope system work for you, and be conscious of your spending habits.

You merely have to decide to regain control over your financial life. Good luck!

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Brooks Conkle Banner Image
Brooks Conkle

Brooks is an entrepreneur, father, husband, & follower of the golden rule. He has over 15 years of experience as an entrepreneur after graduating with a Finance degree from Auburn University. Addicted to starting new business projects, he believes in creating multiple income streams and a life of flexibility. Business should work around your life, not the other way around. He creates content on his website, sharing his projects to help other hustlers in marketing, personal finance, and online business.