Manage Money Easily With
An Envelope Budgeting System
Is a personal money management budget too much work to maintain? Try using the envelope budget system, which utilizes budget envelopes containing cash to pay for everyday expenses.
The budget envelope system works best for budgeting, money saving, and living within means.
Budgeting is a good discipline that can help you in controlling your spending, living debt free, saving money for retirement and other goals that are part of your financial freedom plan. But for some, the very process of planning a budget and trying to keep track of spending can just seem too complicated or cumbersome. For them, envelope budgeting is the perfect solution.
To make this method work effectively, you need to commit to using cash to pay as many of your expenses as possible. Discontinue using credit or debit cards or writing checks unless absolutely necessary. However, since using cash for everything is nearly impossible these days, we need to make allowance for those expenses that can’t be paid in cash.
Steps to Set Up Budget Envelopes
- Start by listing your monthly non-cash expense amounts like rent or mortgage payments, utilities, loan payments, etc. For expenses that aren’t paid monthly, like car insurance, calculate how much you would need to save each month to cover these payments. The personal budget worksheet will make this easy to do. Also, list an amount that you would like to save each month. Then, add together all of these amounts. This total is how much you need to keep in your account on a monthly basis to cover non-cash payments and savings.
- Divide this total by the number of times you are paid in a month. This is the amount of each paycheck that you will need to deposit to your bank account. Take the remainder of your paycheck in cash.
- Distribute the cash into envelopes that correspond to each of your spending categories. You can determine categories that make the most sense to you. Some of them might be, groceries, clothing, gasoline, eating out, household, and personal. Mark the name of the category on the envelope.
- Spend the money from the various envelopes as needed. You may find that by using cash instead of plastic, you will reduce the amount that you spend.
- If you run out of cash in a particular envelope, you can take money from a different envelope if there is money still in it. If you do this very often, adjust the amounts you put into each envelope when you receive a paycheck.
- If you run out of all your cash, keep yourself from resorting to credit cards or taking more cash out of your account. This is a process that is forcing you to live within your means.
- If you have cash left over, consider designating more of each paycheck to your savings.
Be sure to try the envelope budget method for at least a few months before deciding whether to stick with it. Though there is some effort to get it set up, it can become a virtually painless way to control your spending.
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