How to create a budget with the envelope system
- Start a simple budget for your home, look no further than the envelope system
- What is the envelope budgeting system?
- How does it work?
If you are looking to start a simple budget for your home, look no further than the envelope system. It has been around for ages and is a simple yet effective way to manage your monthly budgeting needs.
What is the envelope budgeting system?
The envelope system is a way of using cash for the different categories of your home budget. You assign an envelope for each category and fill the envelope with cash. At a glance, you can at any time see how much money is left in that category. It's as simple as that.
How does it work?
By using the envelope system, you use cash to keep your spending in check, once you run out of cash, you stop spending.
Here is the process
- Decide on a budget
Determine how you are going to divide the cash among'st the different categories you have set up. For example groceries, entertainment, clothing, petrol and sundry items.
- Label the envelopes
Write the name of the category on each envelope then put in the budgeted amount of cash per envelope.
- Only use the cash in the envelope
When the cash runs out in the envelope, that is all you will spend in that category until the next payday.
- Use the extra cash left over
If there is any money left over in your envelopes at the end of the month, you can use it to pay off some of your debt, or alternatively, you can put the extra cash into your savings account.
- Rinse and repeat
Every month do the same thing over again with the envelopes and add or subtract the cash per envelope based on your budgetary requirements.
What are the advantages of the envelope system?
It is a simple system that works by using only cash to pay for things, you cannot overspend.
Using the envelope system for your monthly budgetary needs will help discipline you, the more you use the system the more discipline you will be in your approach to finances.
When you use the envelope system, you are less likely to waste money as you will need to think through every purchase you make.
By using cash to make your purchases, you avoid those pesky banking fees for using your debit card or credit card.
Although not an ideal scenario, you can use the cash in the envelopes in case an emergency arises where cash is quickly needed. Maybe you need a ride home in a taxi after checking your car into the dealership for a service.
In modern times, the idea of carrying cash may seem old-fashioned because of the electronics revolution with debit cards, credit cards, but sticking to the envelope system works and you will, over time find that you are, in fact saving money. No cash, no overspending.