The Definitive Guide to Dave Ramsey’s Envelope System

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Wondering if Dave Ramsey’s Envelope System is right for you?

If you’re reading this post, I’ll assume you’ve heard of Dave Ramsey’s envelope system or the cash envelope system. I’ll also assume you aren’t quite where you want to be financially.

Let’s face it, debt and money challenges are stressful! They can disintegrate marriages and take their toll on our health and our relationships with family and friends.

They can lead to things like bankruptcy and foreclosure and other devastating events.

If any of that sounds familiar then you’ve come to the right place!

You’ve probably heard of Dave Ramsey, the man who literally saved my family’s financial future. But let’s investigate Dave Ramsey’s envelope system and his overall plan in great detail.

Most importantly, let’s figure out why the cash envelope system works and how it can help your situation!

Who is Dave Ramsey?

Pictured below are my family with Dave on a recent visit to his studios outside of Nashville.


Dave Ramsey is the host of the long-running Dave Ramsey show heard on radios nationwide as well as in podcast form. He’s a frequent guest on all the major network news channels. And he’s also a New York Times bestselling author.

In short, he’s a big deal in the world of personal finance and if you and your family are not quite where you want to be financially, you need to get to know him.

Dave got his start famously at a card table in his living room after having become a millionaire and then filing bankruptcy. Thus he’s in a perfect position to give financial advice and tell it like it is; the good, the bad and the ugly.

Dave Ramsey’s envelope system is one of the real keys to making your budget work. In fact, it was the turning point in my family’s journey out of financial chaos.

How Dave’s plan has helped my family

My wife and I have been on his plan now for almost 10 years, but we weren’t following Dave Ramsey’s envelope system at first.

We thought we were smarter than Dave.

While we did get rid of our credit cards, we continued to charge our set spending amounts for food, gas & family spending on a debit card.

Somehow we just weren’t gaining the traction we needed. Finally, we decided to give Dave Ramsey’s envelope system a try and that’s when the ball really started rolling for us.

We got out from a home we couldn’t afford and paid off over $60,000 in debt and have never looked back!

Dave Ramsey’s complete plan is contained in his best selling book, The Total Money Makeover. It’s no coincidence he’s sold millions of copies. I’ve scoured the pages of my copy over the years.

Even though I’ve spent hundreds of hours reading his posts and listening to his show, I still glean lots of great tips from this book; even today.

While there’s a great deal of free content on my site and others about how to get out of debt and build your financial future, I strongly urge you to get a copy of his book for yourself!


How does the Dave Ramsey envelope system work?

Essentially once you are on a written household budget, you decide on a set amount of spending money. This is money for gas, food, entertainment and pocket money.

Rather than just continue to charge these things on a credit or debit card like most of us have done, we pay cash.

To make it easier, each paycheck you take out that set amount of money and divide it into individual envelopes. Each spending category gets it’s own envelope.

Once an envelope is empty, you have no more money to spend in that category until next paycheck.

Sometimes when you spend all your cash prematurely it can be a harsh reality.

It’s easy in those moments to simply borrow from another envelope. It is also easy to think you can just charge it on your debit card and hope your spouse doesn’t notice.

In those moments, it’s critical to stay focused and disciplined.

Stay focused on the long-term goals and the big picture.  And next pay period, I’ll bet you’ll evaluate your spending choices more carefully!

Do understand that for things like rent or mortgage, utilities, and other recurring bills, I simply pay those online using my credit union’s online payment systems.

There’s no point in paying cash for set recurring expenses that aren’t discretionary.  Thus for Dave Ramsey’s envelope system, we’re talking about your personal spending.

There you have Dave Ramsey’s envelope system.  But listen to Dave explain it himself!

Why Dave Ramsey’s envelope system works

You see, psychologically, when we just reach for plastic to pay, we lose a true sense of the value of the item. We skip the evaluation process in deciding if we really need that thing. We also typically lose track of how much we’ve spent so far that month.

Many of us have heard that we tend to spend between 12-18% more when we use credit or debit cards instead of cash.

But a recent study by Avni Shah, assistant professor of marketing at U of T Scarborough, found that “You feel something when you physically part with your money, and there are different levels of pain depending on the type of payment”.

In other words, when you reach for plastic, you’re less apt to really care about that purchase or really feel the true value of the item.

Shah went on to say “There are shorter product life cycles (when paying with plastic) and if consumers are feeling less connected to the products they’re already buying, just add easier access to credit and higher consumer debt levels and it’s a toxic combination”.

Between overdraft “protection” (protection for whom?) and revolving credit, it’s all too easy to just keep spending like you’re in Congress!

Thus the cash envelope system keeps us in check. It holds us accountable. We’re more apt to scrutinize just how bad we want that Starbucks coffee each morning. And by simply looking in our wallet, we know exactly how much we have left to spend.

You don’t have to get fancy with your envelopes, but Dave does have a very nice Starter Envelope System available on Amazon Prime for less than $20 bucks, so check that out if you need help!

Not on a written household budget yet?

Being on a written budget each month that you and your spouse agree to in advance is critical for your financial success. It will be almost impossible to live your dreams and truly get ahead.

Dave Ramsey’s envelope system may be the key to dialing things in, but the budget is your blueprint.

If you aren’t sure How to Make a Budget, I have a previous post that walks you through those very steps and I highly recommend you take a moment and review that critical process.

OK, so you’re ready to budget but have no idea where to start or what tool to use?

I have a copy of my Budgeting Spreadsheet available at no charge – a key step in ensuring you have enough money each month to save for retirement!

It’s a simple, highly customizable, Excel spreadsheet and you can download it quickly and easily FOR FREE


What are the Dave Ramsey 7 Baby Steps?

As with any task or goal that seems so large, it can’t be done, just break it down into baby steps!

When something is daunting, intimidating or just flat out challenging, we’re more apt to give up or procrastinate. We tell ourselves we “I can’t do it”. “It’s not realistic”. In truth, we’re just scared.

Fear can be a powerful motivator when used correctly. But you can’t let it control or limit your own actions. If you struggle with the paralyzing effects of fear, take a moment and check out one of my most shared posts called 7 Powerful Ways You Can Conquer Fear & Live Your Dreams.

Dave Ramsey rightly realizes that a financial mess isn’t technical, it’s emotional. Thus the process of cleaning up a mess is incredibly intimidating. He breaks down the journey out of debt and into financial success into a series of small, very achievable, baby steps.

Dave Ramsey’s envelope system is part of the overall system, but the specific Dave Ramsey Baby Steps are:

  • Baby Step 1: $1,000 cash in a beginner emergency fund
  • Baby Step 2: Use the debt snowball to pay off all your debt but the house
  • Baby Step 3: A fully funded emergency fund of 3 to 6 months of expenses
  • Baby Step 4: Invest 15% of your household income into retirement
  • Baby Step 5: Start saving for college
  • Baby Step 6: Pay off your home early
  • Baby Step 7: Build wealth and give generously

How to Use Dave Ramsey’s Envelope System to Save Your Financial Future


First, you need to determine where you are at in his Baby Steps.

There’s no shame in being at step one, but there is shame in hiding your head in the sand. We have to swallow our pride and roll up our sleeves. We made this mess and we can only look to ourselves to clean it up!

Once you’ve identified where you are on the path, then you craft your monthly budget if you don’t have it going already.

Now that you have your budget done, you know how much extra money you have on hand; money for gas, food, entertainment, etc.

Now you’re at the heart of Dave Ramsey’s envelope system.

You take that money out of the bank each payday and divide it up among your envelopes, transferring from the envelopes to your wallet as needed.

In my house, we take out $820.00 each payday (I get paid every 2 weeks. We break down than $820 as follows:

  1. $80 a week for my spending money including gas to and from work ($160)
  2. $60 a week for my wife who is now at home with our 3rd child ($120)
  3. $140 a week for groceries for the 5 of us ($280)
  4. $130 a week for what we call “family fun”; basically eating out, family weekend adventures or extra gas to drive to Grandmas, etc. ($260)

That’s how we do the cash envelope system, but in the early days of following Dave Ramsey’s envelope system, we operated on far less; probably less than half that.

But the beauty of the baby steps journey is that as you get your finances more in line, you are able to let off the intensity a little and enjoy the journey.

After all, if we can’t enjoy at least most of the journey, why are we doing it?

One thing that helped us tremendously is finding small ways to quickly and easily generate extra income. If you have just a little bit of extra time you owe it to yourself to check out my 51 Easy Ways You Can Earn Extra Cash This Month!

What envelopes does my family use?

In our house, we have envelopes for each of the following categories:

  1. My money for the next 2 weeks (gas, spending, etc)
  2. My wife’s money for the next 2 weeks
  3. Family Fun
  4. Groceries week 1
  5. Groceries week 2

We’ve played around with getting more categories and more detailed, but for us, simpler was better. In short, do what works for your family and what will keep you on track the most.

Neither my wife or I spend a lot on a regular basis on clothing or shoes. Thus we don’t have envelopes for that.

When it is time for those expenses, we talk about it and budget it in for the next month. You or your spouse’s spending habits might be very different!

Do what works for you!

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Talk about easy money! Check out BillXperts and see if they can’t save you money too. Some folks have saved thousands!

Do you have questions about Dave Ramsey’s envelope system?

In this post, we took an in-depth look at famed personal finance expert Dave Ramsey and the cash envelope system he famously advocates for.

We explored why paying cash helps save you money, the best ways to get out of debt and cut spending, as well as all of Dave Ramsey’s Baby Steps.

Specifically, though, we looked at Dave Ramsey’s Envelope System and how you can easily implement it into your family. This 1 small move was at the heart of my family’s journey to financial success and I know it can help you too!

What’s the biggest financial challenge you’re facing right now?

If you like this post, please follow my Budgeting board on Pinterest for more great tips from myself and top financial experts!


Photo credits (that aren’t mine or which require attribution):
September 13, 2013 at 09:58PM (possible eraser) by Arya Ziai  is licensed by Creative Commons
While I have years of successful financial & budgeting experience and run several million dollar businesses and handled the accounting, P&L and been responsible for the financial assets of them, I am not an accountant or CPA. Like all my posts, my posts are my opinons based on my own experience, observations, research and mistakes. While I believe all my personal finance posts to be thorough, accurate and well-researched, if you need financial advice, you should seek out a qualified professional in your area.

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