How To Do The Envelope Budgeting System

Budgeting is a pet peeve of mine. I have several posts about why you need to create and stick to a budget. There are several ways to keep up with your budget such as special software for your phone or computer, old-fashioned pencil and paper, spreadsheets like Excel, and the envelope system.

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We have not personally used the envelope system but I know people that do. This way of budgeting is very tangible and for a lot of people, that is better than numbers in a spreadsheet.

Create your budget

First, you have to determine your income and expenses to actually figure out what you can spend. To help you, I have a free list of over 110 budget categories.

Create your budget on paper or however works best for you. You will know how much you have each month to spend and by tracking expenses you will know where you have been spending money.

The envelope system uses cold hard cash – mostly. Bills such as your mortgage, car, and other set necessary expenses can be paid from your checking account. Money after your non-discretionary spending is what you have for your envelopes.

Discretionary spending is for expenses you have control over. These include groceries, gas, clothing, entertainment, gifts, dining out, and other expenses that you can use cash to pay.

Using The Envelope Budgeting System

Get envelopes for each spending category or use a small accordion folder. Write the budget category on each envelope or folder section. Each payday you put money in each envelope.

The envelope system makes you stick to your budget. You pay cash for categories you have marked as cash expenses. When you spend all the cash in an envelope, you stop spending until the next payday. It is suggested you don’t take it from another envelope, but that is a personal decision.

This cash system keeps you honest and accountable for your budget. The envelope budgeting system simply works. If you are only paying for things using cash, and you run out of cash, you cannot possibly overspend.

Any money left in your envelopes at the end of the month should be used wisely! If you have debt, pay on it or put it in savings as an emergency fund. You can also treat yourself to a night out – just don’t spend more than you have leftover.

Some Other Advantages To The System

• Cash is much more tangible than a credit card. Credit cards make it so much easier to overspend.
• Using cash also keeps you from having overdraft charges.
• Using the envelope system can prevent wasteful spending.
• You can focus on areas where you tend to overspend. Set an amount and stop when that money is gone.
• The envelope system forces discipline.

Control your spending and stick to your budget by trying the Envelope Budgeting System. #budgets #spending #EnvelopeBudget Share on X

Are There Any Disadvantages?

• You must get cash from the bank or ATM. Not a deal-breaker but it is something to do.
• It can take a little time to adjust to. If you buy groceries and clothes at Wal-Mart, the cash needs to come from two envelopes.
• Since you won’t be using credit cards, you will lose out on award programs. You have to decide that sticking to your budget is more important to you.
• Everyone in the family that makes purchases has to be on board.
• You may be used to budgeting by month, but with the envelope system, it is easier to budget by paydays.
• If you shop online, it gets a little tricky. Write your budget amount on an envelope and when you pay something online, you write the amount on the envelope and keep track of the spending like a checkbook.
• You need to carry a lot of cash.
• If you are like a lot of us, having the starting money can be hard. You may have to work on getting the cash over time.

Remember, the whole purpose of the envelope system is to control your spending and help you stick to your budget.

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Along with budgeting, you need to learn to cut your spending.