How to Budget Using the Envelope System

Budgets & Banking, Planning & Saving
on July 23, 2013

The envelope system is a creative way to save money and keep your expenses within a budget. When you use the envelope system, you divide your income and split it up into different categories. Once you have created your categories, you can fund an envelope for every expense you have. Proceed to spend money from every envelope until it is gone.

Follow these steps to set up an envelope system and start saving money:

Create A Budget

The most important part of budgeting is to wrap your brain around how much money you have coming in every month. Write it out and use this number to create a budget that you feel will work for your family. Remember, as time passes, you can change your expenses as you gain more knowledge about where you are spending your money.

Create Categories

Divide your budget into categories like food, clothing, gas and entertainment. Create an envelope for every category and fund it with what you budgeted for it in the last step. Fill your envelopes with cash that you have budgeted for your categories.

Spend The Money

Pay for your monthly expenses out of the proper envelopes; make sure you only use money out of the envelope. You can spend this money until it is gone. Once the money is gone, then you will have to wait until next month when you replenish the envelope.

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Save The Leftovers

If you end up with excess cash at the end of the month, then put it into your savings or use it to pay down debts. As time passes, you will notice that you start saving more and more money.

After your month is over, refill the envelopes. After a while, you will be able to tweak your envelopes until every category is very close to the real amount of money you spend.

At first, it may be tough to figure out exactly how much to put in every envelope; this is especially true for families that aren’t used to tracking their expenses. Don’t beat yourself up about this, just try harder to stay on budget next month. Eventually, you will get it perfect.

If you are hesitant about only spending cash, then you can save money by implementing a similar system on your debit card. Simply track all of your expenses and stop spending money on categories when you get down to zero.

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