What is Envelope Budgeting and How Does it Work?

If you’ve been working on saving money for a while now, then you’ll know that there’s no better way to handle your finances than with a good budget.

The trouble is, there’s often a lot more to budgeting than watching where you spend your cash each month. Without a reliable system in place, you can quickly lose track of your expenses, and see your financial goals fizzle into nothing.

There are many different budgeting strategies that today’s consumers can choose from to help them manage their money, but one of the most popular of all is the “envelope” method.

Today, we’re going to introduce you to the simple benefits of the Envelop budgeting system, and how it works.

How Does Envelope Budgeting Work?

The biggest thing that most people like about the envelope budgeting system is how tangible it is. You arrange your cash categories into cold hard money, and then make sure that you’re only using the right amount of cash on specific things – like your food, entertainment, and so on.

The envelope system works because it shows you exactly how much you’re spending. When you pay for everything using plastic credit and debit cards, it’s easy to go over your limits without noticing. However, when you only have a set amount of cash with you every time you go shopping, or out for a meal with friends, you’re forced to stick to your limits.

This method can also be useful if you’re taking out an online payday loan and you want to make sure that you get the most out of your money. Once you’ve compared your loan options online, taking your cash out of the bank and splitting it into specific segments can help to keep you on the right track.

How to Use the Envelope System

To use the envelope system, the first thing you’ll need to do is figure out what you’re going to pay for using cash. If you already have your loan repayments, mortgage, and insurance expenses set up to go out of your bank account via direct debit, then there’s no need to change things so that you can use cash instead. Focus on using the envelope strategy for things like:

• Weekly food expenses
• Household items (toilet roll, shampoo, etc.)
• Entertainment and dining out
• Clothes and hair cuts
• Gifts
• Gas and car care

You can also set up an envelope of “fun money” that you can use on stuff just for you – like a new pair of shoes when you don’t really need them, or a latte after a hard day.

Once you’ve decided on the categories, you’re going to use the envelope system for; you need to actually place the right amount of cash for each thing into an envelope. This means visiting the bank and withdrawing your paycheck, then deciding how you’re going to split up the money you aren’t spending on digital bills.

Once your cash is in your envelopes, that’s it. You only use the money in an envelope for its assigned purpose, and you never use your credit card or debit card for any little “extras” you can’t afford. It might be a good idea to leave your cards at home when you’re using the envelope system for grocery shopping or to keep you disciplined on a night out with friends.

The Benefits of the Envelope System

At first, the envelope budgeting strategy seems quite basic. There’s nothing complicated about it. All you need to do is stick to the rules you give yourself and make the most of the money in your envelopes.

The people who benefit most from this strategy are those who often spend over the limits because it’s too easy to buy things these days with credit and debit cards. Thanks to things like contactless payments, you can easily buy something you don’t really need when you’re dealing with plastic. However, when you’ve sorted all of your money into specific envelopes, you need to think carefully about every penny you use.

The envelope budgeting system makes money more tangible, which means you begin to see the value of what you’re spending again. For a lot of people, this strategy can completely change the relationship that they have with money.

Plus, if there’s something you decide that you want that you don’t have the money with you for, the envelope system will force you to return home to find more cash before you buy anything. This makes impulse purchases less common.

What do you think – could envelope budgeting be right for you?