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Managing Your Money Using Envelopes

By Edited May 7, 2015 1 4

Using Envelopes to Help Manage and Control Your Spending

There are many different strategies out there on how to better manage our money and stay within a budget.  Plastic in the form of credit cards as well as debit cards have made out-of-control spending very easy to do.  There's something about spending cash that hits us in that sweet spot psychologically.  We can feel the transaction a little more when we are handing over that green paper, and thus, we may be less apt to spending as much if we are paying with cash.  One of the simplest ways to inject this form of self-control into our budget is by using an envelope system.

Where's My Envelope?

Tell us how it works!

When you plan your budget before the month begins, you set aside a certain amount for various budget items.  These budget items can include: groceries, clothing, restaurants, and even "blow money."  You should be accounting for each and every dollar to be spent in each of these categories based upon how much you are planning to bring in for the month. 

Consider how often you get paid throughout any given month.  If it's weekly, take out one-fourth of your budgeted amount in cash and start stuffing those envelopes!  If it's bi-weekly, do the same thing, except take out half of your budgeted amount.  If you are paid monthly, then take out the entire amount.

If your income is not fixed (perhaps you work on a commission-only basis), this might be a little more challenging.  The concept is still the same, though.  If you look back three or four months and figure out what you have spent on groceries, for example, you should be able to get pretty close to the cash amounts that you should have in your envelope for groceries as well as in each of your other category envelopes.

Don't cheat the system!

It's easy to assume that you can "borrow" from one category to fund another if your original budgeted amount wasn't enough.  The problem with this is that it doesn't teach you how to be disciplined enough to stay within your budget.  While it might feel right at the time, the lesson is lost.  Instead of borrowing (okay, let's just be truthful here and say stealing) from your other categories, you should instead look for alternatives.  Out of grocery money?  Eat leftovers.  Out of clothing money?  Hold off until the next month; there will be other sales.  Out of spending cash?  Do something that doesn't cost money (a nature hike, a bike ride, take the kids to a park, etc.).  Get inventive and imaginative in order to keep yourself on track.  You'll feel better in the end because you didn't cheat your own system.

There are rewards, fun, and games in all of this.

I'm a firm believer that you should reward good behavior, especially your own.  If you have made it through the month and stayed within your budget to see a few dollars left in several of your envelopes, that's phenomenal!  Now it's time to reward yourself.  If you have been holding off on taking the family out to eat at a restaurant, use the extra cash and splurge a little.  Take your significant other to a movie or concert.  Buy a new pair of shoes.  Perhaps your thoughts on what makes a great reward might be an easier budget the next month, so if that's the case, simply move the leftover funds to next month's budget!  It's up to you; now that you have become better at controlling your money, it has opened up choices for you, including how you would like to reward yourself for a job well done!



May 3, 2014 11:48am
This strategy can work for people who need help staying within budget.
May 3, 2014 11:54am
@dogman007 - yes, I completely agree. There's a lot to be said about a strategy that is both extremely useful and very simple at the same time, and that is the envelope system in a nutshell. The only part that may be difficult in all of this is keeping that discipline going and not cheating the system - ever. As long as that doesn't happen, this will work wonders for staying within budget. Thank you for your feedback; it is greatly appreciated.
May 8, 2014 1:33pm
I can see how this might be a fun 'n original way to stick to a budget! As pointed out in your last paragraph, there are probably a couple of highly "gamified" systems/apps available, aren't there?
May 10, 2014 4:22am
I'm not aware of any apps that actually help to reward for sticking to a budget by using money envelopes, but that's not to say that they don't exist. If anyone finds any out there and would like to post here in the comments, please do!
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