How to Use an Envelope Budgeting System

How to Use an Envelope Budgeting System

Budgeting is something that many people can relate to doing. With the economy being the roller coaster that it has been, it can be difficult to rely on just the notion that you’ll get by. So many have sought out means of budgeting better, or at the very least a more effective means of doing what they have already been trying to do. If you have not considered the envelope budgeting system, it might be worth considering if you need a new system.

Caution

This is a system that requires you to be honest with yourself and amounts that you have determined for various facets of your spending. Disregarding these or taking from other areas to feed upcoming payments or spending can result in a complete break down and failure of the system. It is important that the person attempting the envelope system is dedicated to its success throughout its implementation.

Assess

The first step in this process is to look at all of the bills, payments and recurring amounts you spend upcoming in the next month. This has to include everything that you pay out each month, as this will all be part of the budgeting process. So determine honestly what is upcoming.

Habits and Vices

Your habits and even your vices need to be accounted for as well. So if you are a smoker, or you drink from time to time, the money you intend to spend on these things needs to be accounted for. Date nights with your partner, entertainment funds for music downloads, upcoming movie releases, or new video games should all be apart of this accounted amount as well if you intend to spend money on these things throughout the upcoming month.

Divvy It Up

You should then determine the amount of money that you are going to make within the month. Only count money that you can count on, something that is consistent and reliable. Then you split up that amount of money into various envelopes relative to what you need money for. Cable bill, electric bill, water bill, car payment, gas, groceries, entertainment and more. Each is given a specific amount. It now becomes your responsibility to ensure that these bills stay within your budgeting framework.

The Good and the Bad

The good thing, is that this is a system that can let you have a more hands on approach and visual display of your monthly finances. The unfortunate aspect of this is that it can be much easier to hop envelopes and start a money shuffle. This shuffle usually attempts to rationalize spending more in a certain area a month than what was divvied and convincing yourself more money is coming to cover the now missing money from another envelope.

The key to budgeting with the envelope system is to be concise and consistent. If you have money left over at the end of the month that you were not accounting for, adjust the next month to divvy this additional amount somewhere else if you choose. The idea is to ensure your essentials are taken care of before frivolous things.

One Response

  • Posted by Joe Paul on Mar 21, 2013

    The envelope system is one that is really hard to master. It took me almost 2 years to stop moving money from envelope to envelope but it can be done. This blog is honest about the way the system works and makes it clear about what is from the get go. Good job.

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