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Piggy Banks, Envelopes, and Mattresses, Oh My! Pros and Cons of The Cash-Only Approach

Envelope full of money for a month of spending.

Have you ever heard of the “envelopes budgeting method” (or the first budgeting method)? Cash-only was around for generations before banks or lenders ever arrived on the scene.

How It Works

  • You get paid each month, and instead of putting the total into a bank, you cash the funds and allocate each dollar into a category (represented by a literal envelope). Each envelope is stocked with the amount you believe you’ll spend in that category until your next paycheck. As you spend your cash over the next few days and weeks , you can assess whether the next month’s allocation should increase, decrease, or stay the same.
  • When an envelope is empty, it’s empty. Instead of spending more money in that category, you’re challenged to get creative until your next paycheck arrives and you can restock those funds.

But that’s theory. Real life is full of surprises, both happy and discouraging.

Here are some of the benefits and drawbacks to a cash-only budgeting approach when applied to real life.


  • Envelopes are straightforward. The appeal of the envelopes system is the simplicity. It’s comforting to know you’re budgeting in a way that a child could (and probably should) understand.
  • Increased self-discipline. If your gas money envelope is empty, then it’s time to walk, bike, or hitch a ride to work. Many people appreciate this militant consequence of letting an envelope run dry, because it’s a challenge in creativity.
  • An intimate knowledge of where you spent money this month. As envelopes empty, you can see (in a tactile way) exactly which category was over- or under-funded, and why.
  • The occasionally over-stocked envelope. Getting a paycheck while you still have cash in an envelope is like Christmas. You can plan this deliberately by sacrificing, or it can happen on accident. Either way, it’s fun to have leftover cash for discretionary spending.


  • Variable income. You may not be paid regularly or the same amount each month. Even those with a steady paycheck might be in for the occasional surprise when a paycheck doesn’t equal what was anticipated.
  • Diminished security. You may not have millions stashed in envelopes, but every dollar could be lost if a natural disaster struck or if you were ever the victim of theft. While rare, events like this are catastrophic to a cash-only spender.
  • Inability to accurately track trends. Budgeting software systems and banking institutions have digital tools that help you spot trends over time. You might not feel like you spend a lot on your wardrobe, but what does your 12-month history say? The envelopes method doesn’t offer much by way of data analysis.
  • No benefit to your credit score. When it comes time to land that dream job or buy a house, you’ll want a solid credit score. If you’ve been using a cash-only spending plan, you won’t have any credit history to show.
  • Budgets are rarely straightforward. While cash envelopes sound simple, occasional costs arise that can throw you for a loop. You may dip into other categories to compensate, defeating the purpose of envelopes.

Whether you’re just starting out, have recently been burned by huge fees (and the administrative side of managing money) or have an expert keep your cash, there are times when ditching the credit cards and going to envelopes may be the best route for you. To know for sure you can get a financial assesement by calling a CESI Counselor

Have you ever tried the envelope method of budgeting? What are some pros and cons that you found? Comment below!

Image Source: Flickr


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