Budgeting 101: The Envelope System

Many people struggle with budgeting on a daily basis. And, the simple truth is that it doesn’t matter if you make $20,000 a year or $50,000, you may still find it hard to make your money last. This is why many people use the envelope system. If you’ve never heard of this system, you may be wondering how it can help you make better financial decisions. Whether it’s the need to create a budget before you begin or the discipline to use less money, this can change your spending habits. Let’s take a closer look at the envelope system.

What Is the Envelope System?

The envelope system is a budgeting system based on allotting a certain amount of money for each expense. This money is set aside in envelopes and once the money is gone, it’s gone. This forces people to rethink their spending habits and learn to make the most of their money.

How Does It Help?

This system can help anyone who is living from paycheck to paycheck. However, you need to be able to pull the money out of your account at the beginning of the month. For many families, this means saving up the money so that you can get started with this system. The good news is once you get started, you can start relying less on credit cards and learn to live within your means. That means that this plan is also excellent for those that can’t control reaching for their credit cards or spending more than they should by just charging everything and worrying about it later.

How Do You Get Started?

The first step is to create a budget. You need to account for every expense and make it work with your monthly salary. If the numbers don’t work, you need to rework the budget until they do. Once you know how much needs to be spent on each expense, you need to withdraw the total amount and separate the funds into envelopes for each expense. For example, if your budget includes $200 for groceries, $200 would go in an envelope marked groceries.

One of the best tips for making this system work is to be conservative. Spend the first couple weeks of the month trying to only buy what you absolutely need. This will help ensure that the money goes farther. Another great tip is to split variable expenses into four envelopes, such as groceries. This helps ensure that the money lasts. Last, but not least, lock up those credit cards. This will help ensure that once the money is gone, you can’t just charge more expenses. This will be hard to get used to at first, but will force you to make better decisions.

The envelope system is one of the best budgeting plans. However, it does require a bit of planning and it definitely requires discipline. The good news is that this will teach you to live within your means and get out from under all that debt.

About the Author: Ji Kunka love studying personal finance, investments, and penny stocks. She loves using the envelope system to keep careful track of her food and fuel budgets, especially since she works so far from home.

One thought on “Budgeting 101: The Envelope System”

  1. Great article! The envelope system is definitely the best way to manage your money and live within your income. I use Mvelopes and highly recommend it If anyone would like a free online tool to help get the most out of envelope budgeting. Just go to http://www.mvelopes.com and set up your free account.

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