Simplest Envelope Budgeting System Ever

Ever heard of the envelope budgeting system?  If not, you’re one of the few.  Truthfully, the system works!  It takes time.  It takes commitment.  And it takes everyone in your household.  But it does work.  Can it change your life?  YES, but only if you’re willing to work at it.  So, let’s get started.

Rather than think about the really big financial decisions in your life, the envelope method focuses on the little, daily financial decisions in your life.  Tiny little spending decisions.  Like whether to have that morning coffee or that energy drink from the local convenience store.  As strange as it sounds, that’s where you can really save the most money!  And that’s the easiest place to start.

What is the envelope method?  Generally, you take several envelopes, assign each one a category (such as grocery, gas, clothing, etc.), and then assign each a dollar amount based on the amount of money that you have in your budget for that category.  Then, when you get paid, you actually put that much cash in the envelope.  Yeah, that’s right, CASH.  No debit card, no credit card, just cash.

So, what are some typical categories?  Groceries, gas, clothing, entertainment, etc.  Notice that I didn’t put housing, auto loans, credit card bills, utilities, and other types of fixed debt on the list?  That’s because you really can’t change those bills.  Yes, you can try and save on utilities (and you should), but you’re still going to have to pay them.  So, how should you handle those bills?  It’s actually fairly simple – set them up on autopay.  Take them out of the budget at the very beginning.

Instead of trying to stuff those obligations into your envelopes, simply take them off the top.  Pay the bills when you get paid.  Then, use the envelope method to budget what’s left.  Believe me, it makes it so much easier to see what you’ve got to work with!  And from there, be realistic.  Don’t set your grocery budget at $50 a week when you know you’re going to spend $100 a week.  And likewise, don’t put too much into your entertainment budget if you know you’ll really only spend half or three fourths of that amount.  Be realistic.  Look at your budget over the past several months and see what you actually spent, as well as where you could save some, and then use those numbers to start.  You can always adjust them later, but be honest with yourself.

Now, sit down and make up your envelopes, with all the categories, budget numbers written on the front, etc.  And then, once you have your envelopes set up, set up one more.  Call it Miscellaneous, Other, or whatever you want to, but set aside a little bit of “mad” money for those times when you have an unexpected expense or for when you just need to buy something for yourself.  Even though you may not think you need this last envelope, trust me and do it anyway.  You’ll be glad you did later on.

Okay, sounds pretty good so far, right?  Now, here’s where our method is just a little bit different.  You notice that I said we’re budgeting from paycheck to paycheck, right?  Unlike the traditional “envelope” method where you budget for the entire month, we do ours from paycheck to paycheck because, if you have a full month’s worth of money in your envelope, you’re more apt to go spend your entire budget all at once, and then you’d have nothing to live on for the rest of the month, right?   That’s why we do paycheck to paycheck.  And you might even want to break it down a little further… day to day even on some expenses.  Remember, it’s easier to save a little bit every day than it is to try and save a huge amount every month.  So, break your spending down into whatever increments work best for you – you don’t have to do everything the way everyone else does it.  Make adjustments so that it works for you, and then stick to it.  It takes a while, but keep at it.

As you learn to save a little here and there, you’ll find that you might have a little left in your envelopes at the end of the month.  And that’s where the saving comes in… take that little bit of money here and there and put it aside, in a cashbox, in a piggy bank, or even in another envelope.   As it adds up, you can decide whether you want to take half of it and put it toward an extra payment or two on a bill or if you want to treat yourself to something special or even if you just want to watch it add up over time.  Whatever you decide, it’s yours to spend or save as you see fit.  Trust me, you’ll quickly figure this part out – and you’ll soon start working twice as hard to ensure that the money that you have left at the end of the month keeps growing as much as possible.  It’s highly addictive once you get the hang of it and you’ll find yourself saving money in ways and places you never thought possible.

Create a Get Out and Stay Out of Debt Plan

Being in debt feels awful – period and end of story. You feel out of control and you feel an incredible aching weight on your shoulders as you try and work a solution to the mounting financial debt. The only good news is that everyday people get out of debt and stay out of debt – you can do this too!

Get Out of Debt Step #1 – Get The Whole Family Involved In The Solution. Often times, it is the combined spending of kids and parents that helps move a family into debt with cell phones, cell phone plans, clothes, and eating out frequently to name only a few of the common reasons that drive up spending. The same people that were responsible for the debt are also responsible for getting the family out of debt and meeting the new financial plan. Several family meetings will be required to explain why the family is in the situation and how the debt will be eliminated.

Get Out of Debt Step #2 – Forgive Yourself & Accept Financial Mistakes Were Made. This is one of the most vital steps in getting out of debt. If you cannot forgive yourself, and more than likely your spouse, the reasons why you got into debt in the first place, then your get out of debt plan will not work. You need to accept and forgive that financial mistakes were made and deeply understand your current financial situation. Once you have accepted and forgiven yourself for the financial mistakes, you have a clean slate to move forward.

Get Out of Debt Step #3 – Determine How The Debt Happened & Stop It. Often times, the spending on extraordinary financial items such as cars, clothes, and incredible houses are the main culprits of a debt situation. Do everything you can immediately to stop these enormous debt creators. Stop buying expensive clothes, stop buying furniture, and stop buying anything not essential. Stopping the debt so you can start to pay it back is essential.

Get Out of Debt Step #4 – Create a Fixed Pay Back Period with a Budget. After you have stopped the debt, it is time to create a fixed payback time period and a realistic budget. See if you can pay off all your debt in 18 to 36 months. This seems like an incredible short period of time but the brevity of the period combined with incredible discipline to a budget will make it possible. The basic process is that you have to add up all your debt plus the projected interest and divide by 18 months or 36 months and that becomes your monthly debt payment. Then, you have to create and abide by a strict family budget to create the monthly payments.

Get Out of Debt Step #5 – Create Extra Income To Pay Off The Debt. Downsizing to a less expensive car, selling unneeded items, and taking odd jobs are all ways to create income and apply that income to pay down the debt faster. This is where having the entire family as a force to enable faster debt pay off really comes in handy. Finding unneeded items to sell will help significantly to pay the debt off faster.

Getting Out Of Debt Is Never Easy, But It Can Be Done. Involving the entire family is critical and it can serve to bring a family closer together as opposed to bring it apart. A morning shoveling snow or raking leaves as a family will make extra money for debt and make you even more proud as a family. The critical parts of debt reduction are forgiving yourself, stopping the debt, maintaining a strict budget so you pay off debt quickly, and creating extra income to pay the debt down. Now, smile, grit your teeth, and pay off debt.


‎12-19-2016 07:00 AM

Content provided courtesy of USAA.

By Chad Storlie