Budgeting 101: Envelope System
How to use envelopes to save?
Have you ever made a budget for the month, go through the month, and find out that you overspent?
Of course!
Every person I’ve talked with has done this at some point in their lives.
When only using a credit/debit card for a budget, it can be hard to know exactly where you are in your budget unless you’re constantly checking your accounts. Is there a way to keep better track of spending without having to constantly check your accounts?
Voila, The Envelope System!
The Envelope System is a great way to know exactly where you’re at in your budget and not overspend.
So, How Does It Work?
You will start by creating a budget using the following methods: 50/30/20, Pay-yourself-first, ZeroBased Budget, etc.
Next, you’ll take a section from your budget and put it into cash. Most people don’t like storing a lot of cash in their house, so it’s best to pick a section that isn’t very big. Examples of this would be gifts and groceries. It’s best to start small with one or two sections.
Then, you’ll take the cash and separate it out into each section chosen from the previous step.
Finally, you’ll take each section in cash and put them into their own envelopes. Whenever you go to spend money in that section, you’ll use the cash from that envelope to pay. If you go to grab money from the envelope and there isn’t any left, then you can’t spend any more money on that section of your budget. When the money’s gone, it’s gone. The only way that you could spend more money on that section is if you decide to use money from another section. If you do that, then the second section will have less money for that month.
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By following these steps, you’ll learn how to stay within a budget, one step at a time.
Personal Experience
Ever since my wife and I started budgeting, we realized that it was hard to control certain sections of our budget.
When we bought our house, there were a lot of extra expenses from changes that we wanted to make. We knew we needed to control our spending habits or else things could get out of hand really fast. So, we decided to use the Envelope System. We have a section in our budget dedicated to house repairs. We made an envelope for it and put our money in it. Whenever we needed to pay for a repair or tool, we would use the cash from that envelope to pay for it.
By applying this system, we’ve been able to constantly stay within our budget and make the needed repairs at the same time.
Pros and Cons
So, we’ve talked about how to set up and use this system. Let’s talk about the pros and cons of it. By understanding these, you’ll know for yourself if this system will work for you or not.
Pros
The Envelope System has a couple of pros. One of them being that it provides a visual for people to see exactly the amount their spending. When you pay in cash, it has a different feeling than spending with a card. A piece of plastic won’t have the same effect as cold-hard cash. Another pro is that this system work with other types of budgets. So, if you like using a different budgeting system, then you can use this one at the same time.
Cons
While this is a great system overall, it still has a couple of cons with it. For instance, if you have multiple sections in your budget on this system, you’ll need to store a lot of cash. So, you’ll have to come up with a safe place where you can keep it. Another con, you’ll need to make it a habit to get all the cash you need for each section before the start of the month. If you don’t do this, it will become hard to stay on top of your spending for that section. You’ll be tempted to go buy what you need for that section, which makes it easier to overspend. Lastly, not all sections will be in cash. Sections like home mortgage and insurance will most likely be a lot harder to pay for with cash than online.
Conclusion
So, we’ve talked about the basics of this system, how to set it up, my personal experience with it, and the pros and cons. It’s up to you to decide whether this system will work for you or not. As you consider the pros and cons, you’ll know for yourself whether this budgeting system will work for you. Good Luck!
