The envelope budgeting system has been around for decades—but you may have heard about it as the “cash stuffing” method from TikTok videos. This budgeting method involves categorizing your monthly expenses, labeling an envelope for each category and adding cash to each. That cash is yours to spend on the appropriate expense. The two key features—a tangible organizing system and a limit on your available funds—may help you avoid overspending. Here’s what to know about the trend and whether it’s right for you.

What is the envelope budgeting method?

The envelope budgeting method involves three easy steps: Divide your take-home pay into spending categories, label an envelope for each category, and put cash for each category into the envelopes. Then, use cash from the appropriate envelope to cover your expenses. Once the envelope is empty, you won’t be able to overspend because there’s no more cash left. There’s a little psychology involved, too. Research has shown that people who use cash are more conscious of their spending habits and more likely to spend less on a purchase. Having that emotional connection to your money gives you a better chance at sticking to your budget.

‍

Sample envelope budgeting plan

Take a look at an example to see how it works. Let’s say Rachel attends college full-time and brings home $575 a month from her part-time tutoring job. Here are the steps she’ll take to set up the envelope budgeting method:

Step 1: Calculate take-home pay

In our example, Rachel earns $575 a month after taxes. While her income doesn’t fluctuate, yours might—so you can look through your bank statements to get an idea of how much you bring home. Include money from sources like a job, a side hustle or investments.

Step 2: Define your categories

The envelope method focuses on discretionary spending, so you won’t need to include your fixed expenses like housing and utilities. And if your school costs—like tuition, books and supplies—are automatically covered by financial aid, you can leave those out of your categories as well. Everyone’s categories will be different, but some common expenses for college students include:

• Groceries
• Cellphone plan
• Streaming services and other subscriptions
• Car insurance
• Gasoline, parking and bus passes
• Dining out
• Entertainment
• Personal care
• Student club memberships
• Traveling home
• Savings goals, like a vacation
• Car loan payment

Let’s go back to our example. Rachel usually spends her money on gasoline, personal care items, groceries and going out with friends (we’ll categorize that as “entertainment”). Rachel also has two savings goals: an emergency fund and a Spring Break vacation fund.

Step 3: Assign a value to each expense

In this step, you’ll figure out how much to spend in each category. You might have a good idea of what you spend on your expenses each month, but if you need help, go through your bank and credit card statements to jog your memory. In our example, Rachel divides up her expenses like so:

• Personal care items: $25
• Gasoline, parking and transportation: $50
• Vacation savings goal: $50
• Emergency savings goal: $100
• Entertainment: $100
• Groceries: $250

Step 4: Stuff your envelopes

If you’ve seen those TikTok videos, you know this is the fun part. It’s fine to use paper envelopes and write on them with a pen, or you can get creative with a low-cost DIY budget notebook, buy one that fits your style, use stickers as motivation if that’s your thing—you name it. Once you have your labeled envelopes, you’ll withdraw enough cash from your checking account to stuff them. Do this at the beginning of each month (or on your own schedule).

Step 5: Track your expenses

Using your budgeting notebook or the envelope itself, write down the starting total for each category. Every time you spend the cash, make a note of what you purchased and how much it cost. Keep a running total of how much cash is left in each envelope. If you spend less than budgeted one month, leave that money in your envelope in case you need a little more the next month.This is how you’ll track your expenses, which can help you understand where your money is going and whether you need to make any adjustments.

‍

Is the envelope budget method right for me?

The envelope method is one way to put up “guardrails” that help control your spending. You won’t be able to spend more than the cash you’ve allocated to each expense, and the cash itself reminds you of what you’re parting with. The control is a major reason people use the envelope method. But if you find cash impractical, you may decide to take a digital approach. For instance, you can set up a spreadsheet to track your expenses or download an app like Goodbudget. Here are the major pros and cons to go over when figuring out whether the system makes sense for you:

Pros:

• Prevents you from going into debt
• Requires planning
• Reveals your spending patterns
• Helps you start a savings habit

Cons:

• No wiggle room when you run out of money
• Hard to use cash for some bills
• Walking around with cash may be impractical or unsafe
• You won’t get the benefits of using a credit card