How to use the envelope method to budget your money
The envelope method is a simple but powerful budgeting challenge that can help you keep your spending under control.
It involves setting up multiple envelopes (or if you want to do it digitally, you can use Monzo Pots) and dividing your money between each one. You use the money in each envelope for a different thing, like bills, groceries or having fun.
It makes it easier to see how much you've got left for each type of spending, so you don't accidentally spend your rent money on something else. This envelope system has gained a cult-like following because it's simple to use and helps you see really clearly how much you've got left to spend on certain things.
1. Balance your budget
Before anything else, it’s important to check whether your money actually stretches far enough. That means balancing your budget: looking at what you expect to earn, lining it up against what you plan to spend, and working out where you could trim things back if needed.
Monzo helps by showing all your spending in one place, which should make this feel a bit less painful.
Try not to skip this part. No budgeting tips will really help unless your income can cover your outgoings, and this step often reveals useful insights about your habits that’ll come in handy later on.
2. Choose your categories
Next, group your spending into a few different categories, like:
Bills
Groceries
Eating out
Entertainment
Shopping
Holidays
Tax (if you’re self-employed)
There’s no rule about the number of categories. Just remember that each one gets its own envelope.
3. Decide how much to spend on each category
Next, decide how to divide your income across the different envelopes. You should already have a rough sense of this from the first step (balancing your budget). And since Monzo automatically sorts your spending into categories, it should be easy to look back and see what you’d typically spend.
With Monzo, you can also set up custom categories to track things in a more specific way. For example, instead of a broad ‘eating out’ category, you might prefer something more specific like ‘coffee’ or ‘lunch’.
It’s usually sensible to budget a little extra for bills and other essentials, and to factor in bigger but less frequent costs like Christmas presents or paying for your children's school uniforms. You could adjust your allowances as these come up, or set aside money in a separate savings envelope each month, so you’re ready when they do.
4. Create your envelopes and stuff them with cash
Each category needs its own envelope – a place where you can put the money you'll use for that kind of spending. Then you give each envelope a name and put the right amounts into each envelope as soon as you get paid. When you need to pay for something, take the right amount out of the right envelope.
And of course you can also use cash-stuffing envelopes for saving by adding any spare change you have. That’s where the back of the sofa can come in handy.
5. Or… skip the envelopes and try Pots
Pots are a paperless way of trying the envelope method – and you can do it straight from the Monzo app. When you create a Pot with Monzo, you’re setting money aside from your main bank balance for a specific purpose. This could be rent, food or bills (as we mentioned above), but it could also be ‘Gary’s birthday’ or ‘takeaways’ or ‘self-care’.
You can create a Pot for anything you like. And as we mentioned in step 3, if you want to know what you tend to spend money on, Monzo categorises your spending automatically so you can always take a look back and plan your Pots accordingly.
Fill each Pot with the amount you want to spend. And when that Pot runs out, you know not to spend any more money on it.
Making the most of envelope budgeting
The envelope method is a tried-and-true way to stay in control of your money. By setting limits for different spending categories, you can see exactly where your money’s going – and make sure your essentials are covered before you spend on things like a tempting but not-quite-necessary takeaway.
While traditional envelopes work well for some, Monzo Pots make it easier to do the same thing digitally. You can create different Pots for different things – whether that’s bills, holidays, or a treat for yourself – and move money between them in seconds. You can give each Pot a name, photo, and specific goal to keep you motivated.
Whether you prefer physical envelopes or digital Pots, the key is to find a system that helps you spend more intentionally. It’s wise to try out a few different methods to see what works best for you.
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Questions? Answers.
What is envelope budgeting?
The envelope method (also known as cash stuffing) is a budgeting technique where you split your income into different envelopes for specific expenses – like rent, groceries or entertainment. You then spend only what’s in each envelope. Once the money’s gone, that’s it for the month. It’s a simple way to stay mindful about your spending and avoid dipping into money meant for other things.
Does the envelope method work?
Yes – when used consistently, cash stuffing can be a really effective way to control your spending. It helps you see exactly how much you have left for each category and can make budgeting feel more tangible. The key is sticking to your limits and regularly reviewing your envelopes to make sure your allocations still work for your lifestyle.
How do Monzo Pots work?
Monzo Pots are like digital envelopes. You can set them up in the Monzo app to separate your money for different goals or expenses – whether that’s rent, bills, savings, or something fun. Each Pot keeps your money separate from your main balance, so you always know what’s available to spend. You can set savings goals, move money in and out instantly, and even schedule automatic transfers when you get paid. It’s a paper-free, flexible version of the envelope method that fits neatly into everyday digital banking.