Melanie*, 25, is a medical professional living outside of Philadelphia, PA with her dog, Pongo. 🐶 She learned about cash stuffing from her college roommate, but it always made her nervous to bring so much cash with her while running errands.
Cash stuffing, also called the envelope budget method, is a way to budget by spending category, and limit how much you spend based on what you set aside.
This can be helpful if you tend to overspend in certain categories, like eating out or shopping. It typically focuses on expenses that can change from month to month, but you can use it for your fixed expenses too, like rent or mortgage.
Instead of carrying around envelopes filled with cash, Melanie joined Monzo and found a way where she could just use her phone (and her Monzo card for places that didn't accept Apple Pay).
Here's how she uses Pots as part of her budget to stay in control of her spending:
How I set up an envelope budget using Monzo Pots
1. Add up my monthly income 💰
My job pays me $2,000 twice a month - this is after taxes, health insurance, and retirement so those are not included in my budget. I have a side hustle that brings in around $500 each month. So my monthly income is $2,000 + $2,000 + $500 = $4,500.
2. Create a Pot for each spending category 🍯
I broke down my expenses into categories and created individual Pots for them. I have Pots for: Rent, Bills, Student Loans, Phone, Groceries, Personal care (clothes, makeup, beauty salons), Car (gas, insurance, monthly payments), Pongo, Going out, Subscriptions, and Savings.
3. Assign a budget amount to each category 🎯
I live with a roommate so some of my costs are split. My share of the rent is $1,000 per month, and my portion of utilities ranges between $150-200, so those are easy to assign.
The rest are calculated based on the average I spent in those areas in the last 12 months.
I use the Pot “goal amount” for this step. It won’t automatically stop me from adding extra money into each Pot, but it helps me see how much I need in the Pot every month. If I see anything extra in the Pot, I can transfer it out instantly.
🏡 Rent - $1,000
💡 Bills - $200
🎓 Student Loans - $300
📞 Phone - $60
🍳 Groceries - $250
💅 Personal care - $300
🚙 Car - $1,000
🐶 Pongo - $150
💃🏻 Going out - $300
🎶 Subscriptions - $100
🌱 Savings - $500
The remainder stays in my main account balance and is my “fun money.” At the end of every month, I transfer any leftover money into my Savings Pot.
4. Set up each Pot to spend for each budgeting category 🛍️
I used to have to transfer money out of my Pots to spend it, but Monzo is working on a feature to allow us to spend from Pots directly 🤩
You can set up each Pot to spend by merchant or by category. I do a mix of spending by merchant and category.
My Car Pot, for example. For merchants, any transactions from State Farm (my car insurance) and Carvana (my monthly car payments) come from this Pot. I also set it up so that any Transport category transactions are spent from this Pot, like gas stations.
5. Move money into each Pot 💸
You can manually transfer money into each Pot until they reach your budget amounts. Another Monzo tool I use for this is Salary Sorter, which automatically sorts my direct deposit into my Pots based on the amounts that I set. This makes it easy for me so I don’t have to do it manually.
And that's it!
Steps to set up an envelope budget 🪜
To recap, here’s how you can set up your own envelope budget:
Add up your monthly income - this can include your paycheck from your jobs, side hustles, investments, or even one-off payments like a tax refund.
Break down your expenses into categories.
Assign a budget amount to each expense category - if you’re unsure, look at previous bank statements or use Trends to help you see how much you’ve been spending in each category.
Divide up your money into each category.
Envelope budgeting requires some discipline to not overspend, and it can take time to get used to. The key to making it work is to limit your spending to only what you have in the Pot for each category. 🔑
*We changed her name for privacy reasons
Are you interested in sharing how you use Monzo or Pots as a way to manage your money? Email me - and let's chat!