The envelope system is a great budgeting tool even if it’s a little old school! In the past, I’ve used it just for one area of our budget (groceries) and then slacked off. As a result, my grocery spending got out of hand!
I was using my debit card but it’s just not the same as using the envelope system (at least for me). I would always know subconsciously that I really had more to spend than my allotted amount if I found a “deal”. I found “deals” every time I went grocery shopping LOL! Now we’re using the envelope system for a few more categories besides groceries.
What is the envelope system:
Basically, what you do is create a spending envelope of cash for your budgeted categories.
- You create a budget
- Decide on your envelope categories and divide your money accordingly
- You fill your envelopes
- You spend the money in the envelopes and when it’s gone it’s gone.
- Money leftover in an envelope can go into savings or roll over in the envelope
- Start all over again with the next pay period
For example, if you are budgeting $100 a week for groceries. You would put $100 in cash into your grocery envelope for that week and when that’s gone – it’s gone. That’s all you can spend because that’s all the cash you have. Also, if you only spend $60 then that leftover $40 could go into next week’s grocery envelope or you could put it in savings.
If you’re paid once a month, you would withdraw the monthly cost of all your envelope categories and if you’re paid twice a month, you would withdraw half of your monthly budgeted amount each time you’re paid.
Remember – don’t ever take all your envelopes out with you at one time. Be safe and only take the ones that you will be using.
How to set up your envelopes:
Only you can decide what categories to use envelopes for. Obviously expenses like your mortgage or car payment etc. would not be put in envelopes. Not every budget category is suited to this system.
Envelope Category Examples
Some people like to have a gas envelope. Some people don’t want the hassle of going in to pay for fuel, they want to pay at the pump. Someone might spend a lot on cosmetics and want to control their spending in that area. An envelope with a budgeted amount for that category would be a good idea. Me – I hardly wear makeup so I spend close to nothing on it. That’s not a category I need to control.
On the other hand, I have added Books to my envelope system because I could go crazy (and often have) in a bookstore. Even though we utilize our library AND we buy books at the thriftstore, we still spend waaaay too much money on books.
I’ve also given myself a Thrifting envelope. Because honestly, I have a very nice Goodwill about 10 minutes from my house and I could buy something there every time I go! Whether I really need it or not! Little dribs and drabs of money, here and there, they all add up in the end. So I’ve given myself a small budget to buy totally useless but pretty things. This does not include some major pieces of furniture I’m looking for which is in another budget category and might or might not be purchased at a thriftstore.
I’ve also added a Dining Out envelope. We try not to eat out alot, but we were getting into the habit of having lunch out every Saturday along with breakfast out during the week and an occasionally dinner out also. That’s just too much money going out of our budget for that in light of the fact that we have a daughter starting college this year plus we just had to have a new furnace/ac unit installed PLUS all the other things we want to do – on one income.
I’m using my Dave Ramsey envelopes right now. But you can certainly use plain old envelopes as well.
Give it a try. Start with one category and see how it goes. It may take a few months to tweak your budget and get the right amount for each category. So don’t become discouraged if it doesn’t work for you right away.
I think using the envelope system lets you really comprehend how much money you really really have versus some abstract or general idea of how much you have to spend.
I now have my own cute envelope designs available as free printables! Download and print one of the pretty templates and follow my tutorial to make your own envelope system envelopes!
Here’s a tutorial for how to make envelopes Free Envelope Template . How cute are these envelopes! I’m definitely doing her tutorial and making my own once the ones I have wear out.
Or how about these cute fabric envelopes made by Heather Are You Using the Envelope System.
For additional information visit these linked sites:
Dave Ramsey Envelope System
Simple Mom – Envelope System – great post about how she manages it
Mvelopes – an electronic version of the envelope system for those that don’t want to carry cash. I’ve never used but have heard alot of good things about it.
iPhone apps like the Envelope System
Click on the photo to check out my How to Make a Budget Binder Post!