Using the Cash Envelope Method to Get Out of Debt

Eating out and shopping got Nashalie R. Lugo deeper and deeper into debt–until she tried the cash envelope method, and developed an overall financial plan that works wonders.

Written by Nasha Smith / May 4, 2022
Nashalie Lugo photo
Nashalie Lugo

That was the single word Nashalie R. Lugo typed into the YouTube search bar late one evening in 2018 as she attempted to get a handle on her finances. The Connecticut native was studying full-time while working a part-time job, and she quickly racked up debt.

"I would spend money on food because my guilty pleasure is going out to eat, so that's where a lot of my money went," she shared. "And then, if I woke up on Saturday and didn't have work, I would take myself to the store and buy myself something. Because I knew I had money in my account, I felt the need to spend it."

With $10,000 in student loans and another $5,000 in personal debt, Lugo realized she needed guidance in financial management. Her YouTube search yielded several results, but one, in particular, caught her attention. One video showed someone sorting a stack of cash into multiple envelopes. Lugo had stumbled upon the cash envelope system, a budgeting approach in which envelopes are used to categorize specific expenses. The concept is simple: You can only spend the money allocated to that envelope. It's a method that eliminates the frequent debit and credit card swiping that Roxanne admitted she struggled with.

"I was very intrigued because up until that point I used my debit card and credit card for everything,” said Lugo. “I never spent cash."

Starting out with the cash envelope method

Lugo started with what she had. She fashioned her envelopes out of paper and made her own labels. The pile of bills she had accumulated didn't leave much money leftover, but she dutifully stuffed what she had into their corresponding envelopes every week after payday.

"I had five envelopes for bills. I made sure I had gas and food, and I would allow myself an allowance, so I would try to have a certain amount that I could spend on myself,” she explained. “Then I started to get a little bit optimistic in trying to do sinking funds (savings for a future expense) because I was like, 'I'm gonna teach myself to save in the middle of this as well.' I put a lot on my plate to start, but I was very excited to try this new thing out."

Making adjustments

Consistency is critical in making progress, and Lugo admits that she stopped a few times before realizing that she needed to create a more realistic budget.

"I would spend more on food, try to restrict myself on my food budget, and always be disappointed because I would pass it,” she said. “So I started to track where my money was going first before trying it again.

She added, "And each month, I would change the budget because your life changes, so you're not always able to use the budget you used at the beginning of the year. Priorities change as well as the things going on in your life."

Seeing results…and drawbacks

After a year of implementing occasional tweaks and constant reevaluation, Lugo was finally able to see some tangible progress. She paid off her credit card debt and currently has a balance of $2,000 left on her student loans.

The cash envelope method proved effective in eliminating $13,000 worth of debt, but there were some drawbacks.

Lugo found it burdensome to continue withdrawing cash from the bank every week. There was also the matter of safety. As she started earning more money, she became uncomfortable with large amounts of money on her person and home.

The process was also inconvenient at times. On the rare occasion she needed to use her card for a purchase, Lugo would immediately remove the payment from the relevant envelope to make a payment at the bank. The 23-year-old chiropractic assistant started reconsidering her earlier position on card use.

A hybrid cash envelope approach

Lugo decided to adopt a hybrid approach in which she used her cards for daily expenses and savings kept in cash or a separate account.

"In the beginning, I was terrified," she admitted. "When I started using cash envelopes, I thought I would never go back. But then the longer I did it, I thought I might go back because instead of it being something I looked forward to, I dreaded going to the bank to withdraw the money."

Overall, the entire experience has changed Lugo's relationship with money for the better. For one, she now has a sizable savings account that seemed unattainable just a few years ago.

"I definitely learned to become a saver," she said. "It brings me just as much joy to reach my savings goals now compared to when I go buy myself a nice bag or something. That is one personal goal that I thought I would never be able to reach because I knew I was a spender. I thought, 'there's no way that I'm going to be able to know I have that much money in my savings account and not want to dip into it.' But now, if it's in a savings account, it doesn't belong to me. It belongs to the goal that I'm trying to reach. So I feel like that's the biggest takeaway from this whole personal finance journey."

A better relationship with money

In a full-circle moment, Lugo started sharing that journey on her YouTube channel Nash's Wallet, where she documents her budgeting process. It also keeps her accountable.

She is now in control of her spending, but the cashless method still scares her. However, it's a fear she welcomes.

"To this day, whenever I use my credit card or any card, I have so much anxiety that I need to pay it," Lugo explained. "But I'm happy that I have that. I don't want to lose that feeling because that's where it's dangerous, that I could fall back to where I was. I like having that feeling because then I'm on top of it."

About the Author

Nasha Smith

Nasha Smith

Nasha has written about budgeting, being frugal, and saving for publications including Business Insider, Travel Noire, Discover, and Fifth Third Bank. She also loves sharing relatable personal stories that revolve around money.

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