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.