Budget Using An Envelope System

Budgeting your money is important to making sure you have enough to meet your financial goals. There are a number of ways to get your budget down on paper and to allocate funds to different categories. Once you have your budget on paper, however, actually following it can be a challenge. You might not want to have to track every single expense to see how much money you have left over for the month, and you might find yourself spending too much in a category and not even realizing it until after the money is already gone. One way to deal with this problem is to use the envelope system to make sure you stick to your budget.

How Does the Envelope System Work?

The envelope system involves putting a set amount of money for each category of spending into an envelope. For instance, if you budget $400 per month for groceries, you would put $400 into your grocery envelope. You could do this for all of your categories at the beginning of the month if you want, or you could divide the month into two weeks if you get paid bi-weekly.

Once you have put the money in the envelope, use that money to pay for all bills from that category. When you to the grocery store, for example, you’d pay for your groceries out of the $400 that is in the grocery envelope. This makes it easy to keep track of exactly how much money you have spent and how much money you have left over to spend in each category. Instead of tracking each dollar every time you spend it, you can just make sure to take the cash out of the correct envelope.

When the money is gone from an envelope, the money for that category is gone for the month and you don’t spend any more on that category. If the category is an essential one, like groceries for example, then you would have to move money over if the money was gone and there was still more month left. For instance, if you spent all of your grocery cash, then you would have to take money from your eating out envelope or your entertainment envelope. The key is to simply make sure that you are only ever using money from the different envelopes you set aside, so you aren’t taking money away from broader goals like savings or getting into debt by spending more than your total monthly income.

The envelope system makes it easy to monitor your spending and to see where your problem areas are. If you are continually running out of money in a particular envelope every month, that will quickly let you know that you either need to make some spending changes or that you need to allocate more money on your monthly budget to that particular category.

Budget Your Money Using an Envelope System

Budgeting your money is important to making sure you have enough to meet your financial goals. There are a number of ways to get your budget down on paper and to allocate funds to different categories. Once you have your budget on paper, however, actually following it can be a challenge. You might not want to have to track every single expense to see how much money you have left over for the month, and you might find yourself spending too much in a category and not even realizing it until after the money is already gone. One way to deal with this problem is to use the envelope system to make sure you stick to your budget.

How Does the Envelope System Work?

The envelope system involves putting a set amount of money for each category of spending into an envelope. For instance, if you budget $400 per month for groceries, you would put $400 into your grocery envelope. You could do this for all of your categories at the beginning of the month if you want, or you could divide the month into two weeks if you get paid bi-weekly.

Once you have put the money in the envelope, use that money to pay for all bills from that category. When you to the grocery store, for example, you’d pay for your groceries out of the $400 that is in the grocery envelope. This makes it easy to keep track of exactly how much money you have spent and how much money you have left over to spend in each category. Instead of tracking each dollar every time you spend it, you can just make sure to take the cash out of the correct envelope.

When the money is gone from an envelope, the money for that category is gone for the month and you don’t spend any more on that category. If the category is an essential one, like groceries for example, then you would have to move money over if the money was gone and there was still more month left. For instance, if you spent all of your grocery cash, then you would have to take money from your eating out envelope or your entertainment envelope. The key is to simply make sure that you are only ever using money from the different envelopes you set aside, so you aren’t taking money away from broader goals like savings or getting into debt by spending more than your total monthly income.

The envelope system makes it easy to monitor your spending and to see where your problem areas are. If you are continually running out of money in a particular envelope every month, that will quickly let you know that you either need to make some spending changes or that you need to allocate more money on your monthly budget to that particular category.

About The Author

Edwin is a marketer, social media influencer and head writer here at Frugal Wiz. He manages a large network of high quality finance blogs and social media accounts. You can connect with him via email here.

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