How to Use Money Envelopes to Budget

Money Envelopes to Budget

The cash envelope system is a great way to take control of your spending. This method is simple to set up and can be done for free with just a few envelopes, either store bought or homemade. The envelopes are used to hold your money for specific categories in your budget, like food, entertainment, clothing and so forth. The beauty of this budgeting method is that it forces you to hand over cash instead of plastic funds, which can make you think twice about overspending. There is something about using physical cash that makes you slow down in the checkout line, and it also gives you a detailed insight into your spending habits.

The first step is to figure out how much you make each month. Subtract your fixed expenses, such as your rent or mortgage, from that total to get the amount of money envelopes you have left to spend each month on variable expenses. You can use a budgeting software program to help you do this, or just add up each category in your spending and record it on a piece of paper.

Once you have a number, divide it by the number of paychecks you get per month and label each envelope with one of your categories. Then, each time you get paid, cash out the appropriate envelope to cover those spending needs. It is recommended that you keep a few extra dollars in each envelope to cover overruns, which will be inevitable, especially in the beginning.

How to Use Money Envelopes to Budget

Some people prefer to have separate cash envelopes for different stores and restaurants, but it is up to you how to categorize your spending areas. Just be sure that each category represents an area of your budget you can realistically afford to cut back in. If you find that an envelope is empty well before the end of the month, it’s a good idea to take a close look at your budget and determine if you are truly budgeting enough in that category.

When you have spent all of the cash in an envelope, you can either put the remaining money back in the envelope for another month or you can send it to savings or debt repayment. Saving the money can give you a goal to work toward and the additional debt payment will help you move faster on your debt free journey!

One of the best parts of this budgeting technique is that if you come in under budget, it’s okay to celebrate! The point of this system is to teach you healthy spending habits. If you have more money than what you’ve budgeted for, then it’s a great time to save or start working towards your next big purchase!

The key to making this budgeting technique a success is discipline. If you are having a hard time, consider teaming up with an accountability partner or finding a friend who is interested in trying it with you! Just be sure to be honest about your progress and check in with each other often.

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