The envelope budget system is an easy budget for people who want/need to physically see where their money is going.
It’s a very simple process; in fact, all you need to get started is a few envelopes.
You will use a different envelope for each category in your budget. When you receive income, you simply put the correct amount in each envelope for that particular category.
It’s a cash system.
What to Use Envelopes For
Basically, you can mainly use envelopes for every category in your budget that comes out in separate amounts. You would not need to use an envelope for bills that are a once-a-month expense, like a car payment or rent, but feel free to use envelopes for any category if you would like. This system is best for groceries, entertainment, “blow” money, and the like.
The main point of the envelope system is to be able to pull the cash out of an envelope when you need it and once the envelope is empty for the month, you don’t have the option to pull more out, because there isn’t more.
This is a great system, and it helps to instill discipline.
Usually, in an envelope budget, you would have a few categories that can flow over into the next month. For example: if you save $100/month for vacation, you would continue to put $100 in that envelope every month, until you take the actual vacation. For other categories, like groceries, if you don’t spend the full amount, you could let it overflow to the next month or you could put the money you didn’t spend towards something else like vacation, debt reduction, investing, etc. It’s your call.
As Simple as it Gets
That’s it! It really is as simple as it gets. To summarize:
- Receive income
- Fill each category envelope with cash
- Pull the cash out as you spend it
- Stop spending when you run out of money in your envelope
- Repeat at the start of each month