The envelope budgeting system has been used for many years to help people take control of their budgets. This simple to use system will help you organize certain spending categories and will make it easier for you to actually see the money you are spending. This system is quick and easy to implement. If you have a few envelopes around your house you can get started.
While I don’t recommend using the envelope system for every budget category (housing, retirement, etc.), I do recommend it for areas that are key when budgeting. These areas are generally low amount categories that are recurring expenses such as groceries and gasoline expenses.
To get started, decide which categories you feel would be best suited for using the envelope system. Once you have selected the categories, determine the amount you will budget for that category. I use a weekly budget for some categories and a monthly budget for other categories. Here are a few of the categories that might be a good option for you to use in the Envelope system:
- Dining Out
- Personal expenses such as hair cuts and manicure/pedicure
Once you have determined the categories and the amount for each, take an envelope and write the name of the category and the amount on the envelope. If you are paid weekly, take out that amount of money each week from your paycheck and put the cash in the envelope. Here’s an example:
Grocery monthly budget: $240 – weekly amount would be $60. The envelope would start out with $60 in it. Once you have spent the $60, you are out of money in this category and will need to wait until the next week. If you see that $60 per week is not enough you may have to adjust your estimate. This could take a few attempts so don’t get frustrated at first. Once you find the right amount everything should work out well unless you have an unexpected additional expense. Budgets should be flexible but don’t just keep adding to a category. That would actually defeat the purpose of having a budget.
When I started using the envelope our sons were younger and they would see that once the envelope was empty we couldn’t spend anymore in that category until the next week. It is a great visual representation for anyone but especially for children. If you have children allow them to help you with the budget and with putting the money in the envelopes each week. Teamwork is a great way to conquer the budget.
You might be wondering what happens if you have money left in the envelope at the end of the week. A few things could happen in this case. First, you may have over-budgeted in this category so you could lower it. Second, you may have done extremely well this week and could use some of the leftover money to give yourself a special treat or reward. Third, you could leave the money in the envelope and add the weekly amount to it. That way you could have a larger food budget the next time around. Finally, you could put the money left over in a savings account or put it towards a special trip or item you wish to purchase.
Using the envelope can you help you develop better budgeting skills. By actually seeing the empty envelopes you will realize you cannot spend any more money in that category until the next budgeting period. It works for my family and it should work for your family, too.