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.
Before you build a budget
NerdWallet breaks down your spending and shows you ways to save.
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:
$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.
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.
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.
The idea is to split up your money according to how much you want to spend in each category—and then only let yourself spend until the cash in each envelope is gone. Envelope budgeting works best for variable expenses, like groceries and dining out, which change slightly every month depending on your spending habits.
It works like this: Gather 100 envelopes and number them from 1 to 100. Each day, fill up one envelope with the amount of cash corresponding to the number on the envelope. You can fill up the envelopes in order or pick them at random. After you've filled up all the envelopes, you'll have a total savings of $5,050.
It may be time-consuming. If you decide to use cash and envelopes instead of digital tools, you'll need to cash your paychecks and divide up the money every pay period.
Those will become part of your budget. The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals. Let's take a closer look at each category.
The 100-envelope challenge is a way to gamify saving money. Each day for 100 days, you'll set aside a predetermined dollar amount in different envelopes. After just over 3 months, you could have more than $5,000 saved.
Goodbudget helps you to stick to your budget limits without the hassle of keeping actual cash in physical envelopes. It's available on the Web, iPhone, and Android. Save for big expenses, share household expenses, and budget on the go.
The 100-envelope challenge is pretty straightforward: You take 100 envelopes, number each of them and then save the corresponding dollar amount in each envelope. For instance, you put $1 in “Envelope 1,” $2 in “Envelope 2,” and so on. By the end of 100 days, you'll have saved $5,050.
“Divide $5,000 by six months and that equals $833/month that must be removed from the budget or earned in extra income. The solution lies with the person — they must know themselves to know what will work for them and typically one solution or the other will be more appealing.
The envelope system can still work, but in a different way. Remember, the idea behind carrying limited physical cash is simply to control how much you spend, almost utilizing it as a quick visual. The fix: Keep money in your bank account, but list expenses on your envelope. DO NOT spend more than what you allocated.
One popular budgeting program is called "cash stuffing,” which involves envelopes that you put cash into each month. The idea is to help you prevent overspending by categorizing your expenses. That can help you stay motivated and track your money more carefully because you know exactly where it's going.
Cash stuffing might also be useful for those who want to reduce their credit card spending. By having some or all of your spending money in cash, you're less likely to make credit card purchases, delay paying them off and add to your credit card bill.
In his free webinar last week, Market Briefs CEO Jaspreet Singh alerted me to a variation: the popular 75-15-10 rule. Singh called it leading your money. This iteration calls for you to put 75% of after-tax income to daily expenses, 15% to investing and 10% to savings.
The zero-based budgeting process is a strategic budgeting approach that mandates a fresh evaluation of all expenses during each budgeting cycle. Unlike traditional budgeting, where previous spending levels are typically adjusted, ZBB requires individuals or organizations to justify every expense from the ground up.
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.
The 100-envelope challenge is pretty straightforward: You take 100 envelopes, number each of them and then save the corresponding dollar amount in each envelope. For instance, you put $1 in “Envelope 1,” $2 in “Envelope 2,” and so on. By the end of 100 days, you'll have saved $5,050.
The envelope system can help new budgeters and impulsive spenders. It lets you set goals and gauge how much you spend and save. Armed with a plan, you can learn how to stick to a budget and take charge of your finances.
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