What is the Envelope Budget, and How Can it Help You Save Money?

Having trouble keeping track of your money? Well, the envelope budgeting method uses some old-fashioned techniques to help you stay the course.

Envelopes can do almost anything! They can be used to send letters; they can hold paper clips; you can make mathematical calculations on the back of them; they can even be used to store live crickets, albeit ineffectively.

But did you know that envelopes can help you keep to your budget? It’s true! And keeping to your budget is very important. Because there’s no use in making a budget if you don’t actually stick to it. And if you don’t actually keep to your budget, then you’ll have wasted your time.

The basics of budgeting.

As you’re probably aware, the purpose of crafting a budget is to make sure you’ll be able to purchase everything you need on the income you’re receiving.

It’s pretty basic math. Your income goes in one column. Your necessary expenses go into another column. Then you subtract those expenses from your income, and whatever is left over can be used for savings, paying down debt, and fun stuff.

If there isn’t anything left over after subtracting all of your necessary expenses … well … you’re going to have to find a way to get more income or fewer expenses.

So that’s how you make a budget! But none of that helps you keep your budget, which is where the envelopes come in.

Cashing out.

OK, time to get your envelopes ready. You can probably get a bunch from your post office or local office supply store. Or, if you work in an office, you might be able to get some there.

The point is, most kinds of offices will have some kind of envelopes. And you need these envelopes!

And now we’ll turn it over to author Caitlin Fisher (@caitlizfisher) to explain what you’ll need those envelopes for:

“The envelope budgeting method relies on cash rather than swiping your card everywhere you go. When determining your budget for the month, categories like groceries, restaurants, spending money, and entertainment can be withdrawn from the bank in cash and separated into envelopes.

“When that envelope is empty, you’re out of money for that expense this month.

“The advantage of operating with cash, and envelopes, in particular, is that you’ll have an ongoing awareness of your spending and you’ll see when you’re getting low. Spending cash also feels different, since swiping a card doesn’t really ‘feel’ like spending money. When you’re handing over your own cash, you feel it more!”

Want an example? We’ve got an example for you, courtesy Tracie Forbes, the Penny Pinchin’ Mom (@PennyPinchinMom):

“Let’s say you budget $300 for groceries every two weeks. When payday comes, you first go to the bank and get $300 cash from your account. Note the deposit on the outside of the envelope.

“When you go to the grocery store, you won’t reach for your debit card, you will instead pull out cash. As soon as you get home, deduct the amount you just spent from the total. You know now how much money you have left to buy food until the next payday.”

High tech envelopes.

Is this all a bit old-fashioned for you? Well too, bad, because that’s the point!

Just kidding! There are some good ways you can incorporate technology into the envelope budgeting method.

“So buying with cash is a pain, and while that’s good, it’s still a pain,” explained Matt Matheson of Method To Your Money (@method_money). With things moving towards being completely digital, I felt like the old-school envelope budgeting system needed an upgrade.

That’s why Matheson developed the Envelope System 2.0, which gives the cash-only system a “21st-century twist.” Here’s how he described it:

“Basically, it’s a hybrid system between using cash and debiting transactions from your bank account. For my wife and I, we use old-school envelopes for things like clothes, kids items, cosmetics, going out, and for her fun money. And we have digital envelopes for things like travel, car maintenance, gifts, my fun, home maintenance, and property taxes.

“At the start of the month, we sit down and have a budget meeting. This is where we go over last month’s expenses to see how we did, and we look at the anticipated expenses of the month ahead. Based on this, we split up all of our income into either a cash envelope or a digital one, as we run a zero-based budget.

“At the beginning of each month, I stroll into the bank to get out a wad of cash. I have my list of envelopes I need cash for (all on my very handy, and FREE, EveryDollar app), which we use to track our spending) and I add them all up and determine my total amount and which denominations I need. Since I’m ‘weird,’ I’m very well known in several bank branches in the area for being ‘that guy with 20 accounts who does that envelope thing.’

“Typically the cash envelopes are used for more common, everyday things. They also tend to be things that if we weren’t watching closely, we could easily overspend on. For example, we use a regular envelope for groceries and kids items. If we didn’t keep an eye on our budget for these items, they could easily spiral out of control.

“My wife really loves using the cash as having the visual of how much money is left is super important and helpful. She knows exactly how much money is left for each category, and it frees her up to spend as much of it as she wants. It was also nice to be able to see the cash build up over the months if it wasn’t spent and to know that she didn’t have to worry about overspending. When it was gone, it was gone. If there was money left she could spend like it was 1999.

“The digital envelopes, on the other hand, are typically for purchases that I make or ones that may be larger. These may be things like home repairs or when I need to get work done on the car. The digital envelopes work very simply. When I get work done on the car, for example, I’ll usually pay with my credit card (I try to get as many points as I can!). I take the receipt and keep it in my wallet. If I pay with my debit card, I do the same thing.

“Every few weeks, I’ll sit down to pay our bills and organize the receipts. When I come across the one for the car repair, if it was a debit purchase I’ll transfer the funds from the car maintenance account to the general chequing account. If something was purchased on a credit card, I wait until the bill comes in. Then my wife and I sit down and determine which accounts to transfer money from to pay the bill. Once all the money has been transferred into our chequing account, we pay the bill.

“It’s easy. Painless. Convenient. And quick. It also prevents us from overspending. And then whatever we don’t spend in each category gets saved in that account.”

Budgeting for a better tomorrow.

Whether you use the old envelope method, the new one, or some combination will depend on your situation. Maybe you’ll even come up with a new twist that works especially for you!

But whichever budgeting system you end up choosing, what matters most is that you make a budget, period. Once you’ve taken control of your money, you can start saving up for big purchases, putting money aside money for retirement, and building your emergency fund.

These kinds of financial buffers are the thing that will save you from having to rely on short-term bad credit loans and predatory no credit check loans like payday loans, title loans, and cash advances when times get tough. Even your relatively safer bad credit options like installment loans pale in comparison to just being able to dip into your savings.

No matter which budgeting method you decide to choose, it’s going to be a hassle. Just remember that a little budgeting hassle today is worth the financial stress it’ll save you tomorrow.

To learn more about budgeting, check out these related posts and articles from OppLoans:

Do you have a question about budgeting you’d like us to answer? Let us know! You can find us on Facebook and Twitter.

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Caitlin Fisher (@caitlizfisher) helps millennials succeed in a society that blames them for everything gone wrong, through practical life advice including personal finance and budgeting, relationships, and career guidance. Her upcoming book, The Gaslighting of the Millennial Generation, will be published in May 2019 by Mango Publishing. Read more at CaitlinFisherAuthor.com.
In 2009, Tracie Forbes (@PennyPinchinMom) and her husband worked together to pay off more than $37,000 in debt. She then started her website, PennyPinchinMom.com to help other families learn how to budget, pay off their debt, and how to save money on every purchase they make. She has been featured on Good Morning America, Wall Street Journal and other publications. When not busy helping her readers with their finances, she can be found at home in Missouri with her husband and 3 kids, ages 10-14.
Matt Matheson is an Assistant Principal by day, and a personal finance blogger at night, as well as a husband to an awesome wife and father to two great little munchkins. You can find him writing about money, family, and mindsets at MethodToYourMoney.com or on Twitter @Method_Money.

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