Envelope budget

Jason

11 years ago

Envelope budget system

My wife and I often get asked how we manage our budget on a practical level. It is all well and good to have a piece of paper somewhere telling you how much money you are supposed to spend each month, but it is much more difficult to actually manage to that budget. There are many ways this can be done. Mint.com‘s budget system will track all of your spending categories and can even alert you when you go over budget. Some people do this manually with a spreadsheet or by keeping all of their receipts. We use an envelope budget. We pull cash each paycheck and put that money into envelopes.

These envelopes correspond to various categories of our spending and when the envelope is empty we are out of money for that particular category. If there is no money in the “Eating out” envelope we eat at home. Or at least we should, we aren’t perfect. Using this method makes all the money spent more tangible, you think more about each decision to spend. It also helps us to ensure we don’t go over our budgets because in theory we shouldn’t be using our debit card, where spending is much easier to lose track of .

Advantages to the Envelope budget system

Spending is easier to track – As I mentioned above, you know exactly how much money you have left in a particular category. You can all so put your receipts in the envelope to replace the cash to know exactly where you spent the money.
Theoretically impossible to break – If you only spend the money that is in the envelope you will never go over your budgeted amount.
Money easily carries over to next budget period – Money not spent during the week or month carries over ino the next time period. This allows for visual savings or if you need larger amounts like for a family hair cut.

Image by kgnixer

Drawbacks to the Envelope budget system

You don’t always have the right envelope – We have many times decided to go out to eat after church but we didn’t bring our eating out envelope. Now we have to decide what to do? Will you deposit the money you spent from your envelope?
You need to pull cash regularly – It is inconvenient and we often forget to pull the cash so we end up using the debit card and trying balance that by not pulling the full amount of cash.