On its surface, envelope budgeting seems like a good idea. That is, until you try it.

Believe me, I’ve tried it. And tried it. And tried it. And every time I’ve tried it, there’s some reason that envelope budgeting doesn’t work for me and my family.

If you’re considering envelope budgeting because you think it’ll help you control your spending, stop going into debt, or meet other financial goals, good for you. But before you try it, check out these reasons envelope budgeting may not be such a fabulous idea.

1. You Need to Carry a lot of Cash

The traditional envelope system involves putting cash for different spending categories in envelopes. This means that the majority of your spending (besides paying bills online or with checks) is done in cash. Which means that you have to carry a ton of cash. Which, especially for a forgetful person like me, is a little scary.

2. Super-Strict Budgeting Isn’t Always Helpful

Envelope budgeting hinges on a very strict budget with minute categories for everything from grocery shopping to clothing to dining out. This type of budget may make a Type A personality feel better, but it’s usually not that helpful and can be really stressful for the rest of us.

3. There Are Better Budgeting Systems Available

The huge number of online and computer-based (and smartphone-based) budgeting systems today make envelope budgeting pretty much obsolete.

Some of these systems, such as EEBA (Easy Envelope Budget Aid), keep track of virtual envelopes, and others, such as Mint.com, update transactions automatically. One of the best is You Need a Budget (YNAB), which helps you live off of last month’s income and is one of the best ways to keep your financial life even-keeled.

4. You Can’t Take Advantage of Credit Card Rewards

Despite what you’ve heard, (ahem, Dave Ramsey) credit cards are not the devil. Sure, some people have trouble controlling their spending when they use credit cards. But that doesn’t hold true for all people.

In fact, using credit cards to pay for basic expenses, and then paying those credit cards down, can be a great way to rack up rewards, which can be used in lots of different ways.

5. You May Have to Juggle Shared Cash Around

One of the biggest glitches my family has had with envelope budgeting is with grocery money. I do most of the shopping, so I tended to carry the grocery cash. That was a problem when I’d ask my husband to swing by the store to pick up some odds and ends on his way home from work.

He didn’t have the grocery envelope, so he paid for the groceries out of his allowance envelope, and then we had to reconcile it later. Or he had to swipe the debit card, leaving our budget unbalanced for the month.

Unless you are very, very good at planning ahead and would never be without the cash you need at the time you need it, envelope budgeting can be annoying in this way.

6. Sticking with Categories Can be Tough

Again, with the minute categories! Let’s say that you head to your local Wally World to pick up some bread and cheese, a pair of flip flops for your kid, a new lamp for the living room, and a shirt for yourself. If your family is like mine was on the envelope budget, each of those things has its own separate envelope (groceries, kids, home improvement and clothing).

So how do you divvy that all up at the register? Do you run each transaction separately? (And risk being murdered by the people behind you?) Or do you pay out of one envelope and juggle the differences later? (Which, by the way, will leave you with weird amounts of change that you probably don’t have.) Again, frustrating and confusing.

And don’t even get me started with how we worked it out (by putting money back in the bank, usually) when we decided to buy something online.

7. You May Need a lot of Money Available Up Front

As a paycheck-to-paycheck sort of family (we’re working on that!), we had a lot of trouble filling our envelopes at the right time.

Say we budgeted $300 for groceries for the month. Well, between paying rent and other essential bills with that first paycheck, we didn’t have $300 left. So we’d take out $50 for groceries, but then we’d have to remember to take out the other $250 with the next paycheck.

But between checks, we’d often need a couple of items here or there, so we’d end up with a grocery budget balance of more like $243. And you can’t withdraw $243 directly from the ATM. (And who has time to go into the bank, I ask you?)

The months when we could fund most of our envelopes at the beginning of the month were a little better, but they were few and far between. Budgeting per paycheck would make this slightly easier – if I weren’t a freelancer with unpredictable paychecks.

Some Other Options

With all this said, I do know some people who have made the envelope system work. Like my grandparents. In 1966.

But for most of us, it’s outdated in a day of awesome credit card rewards, online spending (which you can’t do in cash) and excellent budgeting tools.

Luckily, I’m going to give you a rundown of some alternatives that can help you control your spending without losing your mind:

  • Rob’s easy budget – Basically, Rob budgets for the set bills he has to pay and then keeps tabs on the rest of the spending, which his family can divvy out as they please. The rest of these four budgeting techniques can all be used with this laid-back budgeting style (or, if you want to categorize things a little more, you can).
  • The YNAB system – You Need a Budget helps you build up one month’s surplus in your checking account. (Shocking, I know!) Then, you budget each month out of last month’s income. So you don’t ever run your checking account balance to $0, and you have some emergency leeway when you need it.
  • A Mint.com budget – I use Mint because A) it’s free, B) it automatically downloads transactions so I don’t have to record them, and C) it tracks spending on neat little graphs.
  • A good, old-fashioned spreadsheet – Spend on your credit and debit cards, and track it all on an old-fashioned Excel spreadsheet.

Have you ever tried envelope budgeting? Did it work for you, or not?


  • Abby Hayes

    Abby is a freelance journalist who writes on everything from personal finance to health and wellness. She spends her spare time bargain hunting and meal planning for her family of three. She has a B.A. in English Literature from Indiana University Purdue University Indianapolis, and lives with her husband and children in Indianapolis.

    View all posts