Budgeting with envelopes
The envelope system is very basic, but generally a very successful way to make a budget. It is a bit primitive in our technologically advanced society. But most Americans are in debt up to their eyeballs, largely due to the fact that technology has made it very easy to go in debt. So, if primitive works, why not do it?
- I would suggest paying all of your BILLS (Mortgage, Electric, Phone, etc.) from your checking account, and then I would use the envelope system for the remaining money.
- Make your list of items that you need to budget for (groceries, gas, entertainment, clothing, etc.). For this system, I would suggest making the categories as specific as possible.
- Now that you have a list, estimate a monthly or bi-monthly dollar amount that you will need next to each item. If you don’t have good records of your spending, this may take a couple months to get this right.
- Buy a box of envelopes, get out a big, stinky Sharpie marker and write a name on each envelope (groceries, gas, entertainment, etc.).
- Go grab the cash from the ATM and fill up each envelope with the allocated amount. The key to this system is that when the envelope is empty, you are FINISHED spending for that period. It forces you to plan ahead based on how much money is allocated.
I think it is a good idea to create a MISCELLANEOUS envelope, I promise that you will find something to use it on that you had not planned and if you don’t, then let it keep getting bigger until you do. Because you will use it eventually.You will have to make adjustments the first few months, but just start somewhere and keep tweaking it until it is just right.
If the envelope system of budgeting isn’t your thing you may want to check out some of the free budget software that is available. Or try out one of the free household budget templates.
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Bob, nice write-up. We’re using this for certain budget categories that we find difficult to rein in, like eating out, groceries, and “blow money”.
What about budgeting for credit cards using the envelope system? Does that even make sense to do? Perhaps putting in mock money and taking it out whenever you charge something. That is my most feared expense because I always end up spending far more than I want or need to.
@Maggie
I think you mean using your Credit card to make the purchases, then paying it off at the end of the month. If not let me know… But if that is what you are referring to, I would be very careful, because for what ever reason the average person spends (I think I remember hearing this) about 15% more when they use a credit card than cash. So using your “mock money” idea may very well work – just be careful and keep me updated
We have started using the envelope system this past month, and I bought a great coupon wallet at Target that works much better than the individual envelopes (which I was carrying around in my purse and were getting all chewed up)This works great!
@Melissa
Good to hear! That is a good tip, thanks for sharing
Prov 24:3-4 ‘By wisdom a house is built, and by understanding it is established; and by knowledge the rooms are filled with all precious and pleasant riches.’
Using the envelope system was one of the best things my wife and I ever did. I think it is great because it makes you proactive instead of reactive. As you spend, you emotionally feel and see the money leaving, so you make better decisions along the way. You don’t even have to track it, just look in the envelope. It is so much better than the old cycle of: 1. spend on plastic, 2. feel vaguely guilty but enjoy the denial, 3. reconcile at the end of the month with Quicken and find out we totally blew the budget again…
@Phil
I am really glad to hear that!! I think your testimony will be good encouragement to the readers who are a little leary of the whole envelope budgeting thing… thanks for sharing
You should read the book, Money for Life. It talks about the credit card spending. It adda the fee in a seperate envelope, but makes you pay for the item in your envelope system. If you charge clothes then it has to come out of your clothing envelope. This allows for the cards not to have any more expenses placed on them.
I just lost 40% of my net income due to my exhusband losing his job and the child support ending. Frankly, I don’t make enough to get by, but thankfully I have a few months worth in savings. Since I really have to tighten up as much as possible, I am going to start using the envelope system. I plan to use a coupon organizer to separate the money. I’m only going to carry around the weekly amount so I don’t have a huge wad of cash that could potentially go missing. The reason I intend to carry all of my categories around is because I have to do my shopping when I get spare time. A little planning would probably fix that but until that happens, I’m going to do it this way. I’m excited to see if it works for me.