So you’ve finally mastered excel and established a budget that works for you! Only problem is, you still seem to end up short each month without really understanding how! Trust me, it happens to the best of us! With most of us using debit cards for our monthly bills as well as miscellaneous and household expenses, the lines of how much money to spend on what can become very blurred! This is why I absolutely LOVE the envelope system!
What Is The Envelope System?
The envelope system is simply a budgeting method in which you take cash for your expenses such as groceries, gas, household supplies, entertainment, grooming, etc and you put the budgeted money for each category in the appropriate labeled envelope. Yup, I know the thought of using cash in this day and age seems obsolete, and although there are methods in which you can apply this using an online system such as mvelopes or Goodbudget Budget Planner, I prefer to use cash as it allows me to be more precise with our budget.
How Does It Work
The first steps you want to take is creating a monthly budget for expenses such as groceries, household items, grooming, gas, clothing, etc. You can then divide it by your pay periods per month. If you get paid weekly you would divide by four and bi-weekly divide by two. Although you can also fill your envelopes monthly, it works better for our family when we refill our envelopes weekly.
Once you have decided what you will spend in each category you will take an envelope, write the category name on it, and put the budgeted amount in that envelope. Whenever you have to purchase items for that particular category you will have to make sure to have the envelope in hand so you are only spending the funds allocated for that expense.
Remember, this is a tool to assist in budgeting better so once you have depleted the funds in a particular envelope then you cannot use funds from another one. This will help you become more disciplined and plan better in terms of your budget. If you find that you need more money for groceries than you originally anticipated, this will be the best way to see that and make the appropriate adjustments to your budget.
The Pros
We’ve been using the enevelope method for the last six months and its made a tremendous difference in how we spend our money. Some of the top advantages to this system are:
- It reduces wasteful spending. Because you are using cash that is designated for each expense, it allows you to think more so about your purchases. When using a debit card for expenses such as groceries, household products or entertainment;, its easy to spend a little more than originally budgeted.
- You will become more disciplined. With using the cash method you won’t be able to spend more than you actually have which will reduce impulse spending.
- No Overdraft fees. Mostly all of us have been guilty of becoming swipe happy especially when our purchases are seemingly small. We don’t notice that we went over by just five bucks yet the bank charged us $35.00 for the slight oversight! With the envelope method you obviously avoid this because you are using the cash you designate for those small purchases.
The Cons
- You will miss out on credit card rewards. Because you aren’t using you credit cards for purchases you would miss out on some of the cash or travel rewards you would get from purchases however you can reserve your credit card for bill payment to still earn rewards.
- Forgetting the Envelopes. I personally only carry my envelopes as needed so you could possibly run into a situation where you want to stop and get something from the grocery store but you left the envelope. Although it can be frustrating, this has helped me become more deliberate in regards to my shopping. I plan my trips to the grocery store now which allows me to stay within budget and eat healthier too!
- You have to go to the bank or atm to withdraw. Because you must use cash you do have to withdraw you weekly/bi-weekly envelope amount. Because electronic banking has made me lazy in that regard; I don’t necessarily like going to the bank but drive through atms makes this a little more painless!
Like anything, there are pros and cons to the envelope method however I believe the immediate benefit you will see in your budget by using this method will be worth any slight inconvenience you may initially feel! Give it a try and come back and comment how it ended up working for you!
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