How to Budget with the Envelope System

How to Budget with the Envelope System

Creating a household budget may seem like a simple enough task—but sticking to a budget is definitely no joke. If you’re one of those people who have a hard time keeping within budget, then the envelope system might be just what you need.  Here’s how to budget with the envelope system:

1) Categorize your budget.

The first thing you need to do is budget your paycheck down to the last dime. Figure out how much money you make and how much you spend. Divide your budget into categories you spend on: gas, groceries, dining out, gifts, entertainment, clothing and the like.

2) Create budget envelopes.

Get an envelope for each category you created. Write down the name of the category and the monthly budget allotted for it outside the envelope. After getting your paycheck, fill up each envelope with the amount apportioned for that category.

3) Only spend your cash.

Use money from the appropriate envelopes when paying for your purchases. When an envelope is running on empty, do your best to commit to the system. Start ransacking the pantry if you’ve got no money left for food and pass on that gorgeous dress if there’s nothing left for clothing.

4) Set aside your savings.

If there’s any money left in your envelopes at the end of the month, put it in your savings instead of spending it. You could also use the leftover money to pay off any existing debt.

5) Review and revise.

At the end of each month, look back at your expenses and see if you should have allocated more money for a certain category and less money for another envelope. Make the necessary changes the next time you prepare your envelopes.

This system may seem hard to get used to—especially if you’re not used to making purchases with cash. However, you’ll find that the envelope system not only keeps you disciplined, but makes you much more aware of your spending habits!

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Comments

  1. You couldn’t have written this post at a more perfect time for me. Thanks for the tips!

  2. This is great advice, thanks so much!

  3. We love our envelope system. We’ve been on the Dave Ramsey plan since the beginning of the year and have already paid off two credit cards! One more to go!

  4. My sister was just talking to me about this method that she has used for the past year and is doing really well with it. She has a strong safe of course to prevent theft in case of a break in. Her job deals with cash often, so she allocates cash to certain envelopes for bills and saving for specific things. Now I am reading this here on your blog, so maybe I should learn more about it and give it a try :) thank you

  5. Way to go Danielle! You should be very proud :) I’m thrilled to have had the opportunity to meet Dave earlier this year and we’re working very hard on paying off some cards too!

  6. I definitely recommend it, once you’ve tried it for awhile it becomes a way of life!

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