Budgeting in Envelopes

While budgeting in envelopes has been around forever, in the past everyone had their health and a financial future. That’s why this blog is different. It’s addressing a leaner, meaner, disenfranchised audience with a budgeting tactic that works. Here are the steps to using this effective budgeting tool:

1. Look over your budget, then take a dozen envelopes and label each one with an expense category from your budget sheet.
2. Stuff cash into each envelope, enough to cover the monthly expense found on your budget sheet. Put the envelopes someplace secure.

So, here’s an example: Spell out “groceries” in longhand and place the monthly amount for groceries in the envelope. Do the same for “car expenses,” “rent,” and so on. As you go forward, “spend to live” rather than “live to spend!” Just use what you need and let the rest stay in the envelope till the end of the budgeted time, for instance, a week or a month.

The remaining funds can be reallocated or rolled over into next month’s expenses. Put it in a different envelope, the next month’s envelope, or in the “savings” or “pay off debt envelope.” 

The Big Advantage: Cash and Carry Discipline

Budgeting in envelopes encourages you to become a cash-and-carry person or develop a cash-and-carry attitude. As a result, those surprise credit card bills stop appearing in the mail at the end of the month. In truth, envelope budgeting often accompanies scissoring up your credit cards. 

The other advantage is that there is no swiping with credit cards. Cash never malfunctions. There are no PINs to remember.

Spending to Live, Not Living to Spend!

Another advantage of budgeting in envelopes is learning to “spend to live” rather than “living to spend.” Conspicuous consumption is a mindset that’s everywhere. After all, it is a consumer society. 

1. Retail outlets and credit card advertisements promote conspicuous consumption. 
2. It’s reinforced in culture. 

Consumerism is excellent, but it can sometimes get out of control if you lack sound budget tools. 

The idea of “spending to live” is inspired by the notion of “eating to live.”. It’s not hard to imagine a person who “lives to eat.” 

1. When you “live to spend,” the experience of consumerism is an end in itself. 
2. “Spending to live,” on the other hand, means you skip a purchase because you don’t feel you need more consumer products to live. 
3. Sometimes we’re just not in need of junk. In those cases, you won’t miss what you don’t purchase.

 It’s the same with spending on consumer items. “Spending to live” is just buying what you need to get by and blowing off consumption if you can’t justify spending. 

Budgeting In Envelopes: Control Discretionary Spending

There are exceptions:  

1. Skip creating envelopes for expenses like housing or utilities. Pay those bills directly from an account or other arrangement. In addition, any online subscriptions or payments could be covered by a bank card or PayPal.
2. Use common sense when spending, and you can borrow from one envelope to pay from another. 

In the end, much of it is discretionary spending, and that’s easy to control. 

Keep track of your spending by checking the cash available in the envelope rather than an abstract figure on a budget line. If there are only ten bucks left for groceries with three days to go, figure out how to make the money stretch.

Does an Envelope System Work?

If you recognize the advantages of an envelope system, it works great. Aspects of the overspending behavior that the envelope system solves include:

1. Problems created by the availability of easy credit
2. Problems created by overconfidence that living beyond one’s means will eventually self-reconcile. Beware that you don’t self-destruct instead. 

The envelope system encourages the cash-and-carry habit. Replace the cash with receipts from your purchases and record them on your budget. Wait until the next budget cycle starts to replenish an exhausted envelope.

What to Do with Unused Funds?

So, get ahead in your budgeting: 

1. Carry surpluses over into the next month. Start the month with partially full envelopes.
2. That’s good, but a saving account is the best place to put the leftover money from envelope budgeting. 

Experts believe you should put away 25 percent of your income in savings. Indeed, create a savings envelope just like every other category in your envelopes. By socking the money away in savings, you can get ahead. 

How Much Money Goes into Each Envelope?

Many people believe you should pay $200 a month on groceries, so start with that, but tweak it to reflect your experience. 

1. Add clipped coupons to your envelopes to help defray monthly expenses. 
2. If you have a family, increase by $100 a month the amount in your grocery budget for each additional member in the household. 

Month to month, see how it goes. Adjust your numbers until you’re comfortable with what you’re spending.

TIP: If money goes through your hands like water, envelope budgeting probably won’t work. Keeping cold cash around the house requires discipline, and, frankly, it’s easier to spend loose cash than credit card money.

Is There an Envelope Budgeting Template?

Suppose you prefer a more excellent system than plain white paper envelopes. In that case, you can buy cash envelope systems in stores like Walmart or Office Max. The selection at online outlets may be preferable.  

This blog was originally published in 2021 and has been slightly edited.

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