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!