Envelope Budget
This envelope system isn’t new. I am not the genius who created it, and yes, that person WAS a genius. This envelope system will transform your financial situation.
Envelope Budget 101:
My #1 tip ever is to use cash only and always. I speak from experience having gotten into thousands of dollars in debt, cash is absolutely the only way to go. I know at first it might sound crazy, you might think if I have cash I will just blow it! However, I think quickly you will see just the opposite happen. You will begin to ask yourself, do we really need this? You will find yourself using coupons more often and shopping at the discount store you always avoided. When you are on a fixed budget you will see that you actually DO have the time to clip coupons and hit a couple of different stores in search of a deal or sale. Amazing how this happens!
Step 1 – Define your categories, what can you possibly pay for cash with? One key here is to only include categories for things that you can’t pay online or through an invoice or bill. Anything that doesn’t come as a bill in the mail is probably a good candidate for cash.
Here is a list of our envelopes. Notice I do not have an envelope for gas, it’s not that we don’t have it budgeted, but it’s because I don’t want to leave the kids in the car while I go into the gas station to pay the attendant. We use our debit card for this expense, note DEBIT, not CREDIT. You’ll need to figure out what best fits your families needs.
ENVELOPES
1. Groceries
2. Toiletries
3. Clothes
4. Gifts (Birthdays, Christmas, etc)
5. Date Night
6. Eating Out
7. Spending Money
8. Car Maintenance
9. Kid’s Date
10. Kid’s Allowance
11. Trip Money
Step 2 – Determine how much you spend in several categories per month, ie. groceries, toiletries, clothing, etc. Not while on a budget, but what you have spent on a regular basis. This make take some time, and you may have no idea because you haven’t kept any track at all so you may have to start this process now for the next 30 days. Now hold on to your seat, you’re going to be shocked.
Step 3 – Figure out how much you THINK you will NEED in each category, but the key here is to be flexible, it will change. It will change more than once, twice, and possibly even three times. Life is always changing and so will your budget. Another baby? Up goes the toiletry budget! Or maybe you just potty trained your 2 year old, well that saves $30 a month!
Step 4 – Get the cash! We go every week on payday to withdraw our cash, it is easiest if you can keep it to an even $20 amount so you can go to the ATM machine at your bank, saves you a trip inside the bank. This has got to be the best part, it’s like playing a game of monopoly. Divide your cash, you may need to go into the bank every once in a while to get $5’s, $10’s, etc depending on your envelope amounts.
Step 5 - Start saving money! When the envelope is empty, that’s it, your money is gone and you CANNOT purchase anything in that category until the next envelope payday. But remember, the first couple of months you need to be flexible. Also, please remember to make your budget realistic, if you undercut yourself too much, you will give up. So that is why my family has an eating out budget, because the reality is, while we shouldn’t eat out, we do. We put $15 a week into our eating out budget, if we save it up we can go out to a sit down dinner, otherwise it gets us a pizza night once a week.
I hope this has been helpful, it is something that we live by and it’s the only way he have been able to to live without credit cards for 2 years now. I’d be happy to go into even more details if you’d like, just contact me!
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I am going to try your system to try to avoid the horrible overdraft fees I have been incurring. I don’t have any credit, so that hasn’t been a problem, but those fees have left me without enough money after all the overdrafts, plus the additional fees for having a zero balance (at $35 a pop, each).
My question is about having all that cash around. I live in a very costly area, but my own residence isn’t very secure. Do you keep the money in a lockbox, or secured in some other way? I am worried about a break-in resulting in the loss of all my money. Do you have suggestions for where and how one might make your monthly bankroll more secure (and I don’t mean just putting it under the mattress – I hear that IS the first place a thief looks!)?
I like to use my credit card since I earn rewards points, but I also pay it off every month. You can still use the same system, but instead of keeping cash in the envelopes, deduct the amount you spend each time when you use your credit card. It takes more discipline to do this, but I also earn anywhere between $200 and $300 cash back in a year.
we don’t use credit cards and have always used the envelope system. we love it it’s easy my envelope system is actually an envelope for each bill category for example……. savings,cell phone,water electric ect,, one for each bill we pay monthly ,yearly (like taxes) and bi-yearly like car insurance break the bill down into weekly payments put that amount in the envelope when the bill is due viola! you have the cash to pay it. Easy .You would not believe the money you can actually put into a savings or money market account by using this system.
do you actually take the envelopes with you
I take the envelopes I plan on using.
I really want to give this a try, but it makes me SOOOOOO nervous! What happens when you get to the checkout lane and you’ve gone over? You ask the checker to delete something? Those are things that make me nervous!
Nina – you have to keep track while you’re shopping, either with a calculator or in your head. I just round up to the whole number so that it’s easier and add as I go because I don’t have time for a calculator when my 2 and 1 yr old are with me! And yes, you can put things back – this happens ALL the time and cashier’s totally understand!
I LOVE this concept! It’s something I did in my late teen years to give myself a little budget, and save up for stuff I needed or wanted. Now, with a family of my own, we have no debt besides a car and mortgage and are trying to save for a house. We do okay financially, but I think we would do way better if we ACTUALLY budgeted! That way we would be able to see where our money goes and what we can cut back on. My hubby is always nervous about having so much cash lying around though…..the one drawback for us!