What Is the Envelope Budgeting System?

The envelope budgeting system is just another way to help manage your money. This is something I highly recommend to those who struggle when cash is in digital form.

I know a few people who need to physically see how much they’re spending. They need to have everything out on the table, and they need to manage their finances in a physical way. That’s okay! If you need to do that, then go for it.

Personally, I have so much set up to spend automatically through online payments that the envelope system wouldn’t work for me. That doesn’t mean it won’t work for you, and you can opt for a hybrid model if you’d like. We’ll get to that.

First, what is the system? It’s where you have everything in cash format. You have individual envelopes for everything that you need to budget for in a month, whether it’s rent, utilities, dining out, shopping, etc.

It got its name because people would use physical envelopes with the “job” of the money written on it. Now, some people still use envelopes, while others will use plastic wallets in their budgeting folder. Others opt for “envelopes” online to make it more digitally friendly.

You will need to calculate your monthly income and outgoings. Then you can separate the income across different envelopes for each of the spending needs and categories.

You only spend what’s in the envelope on the “job” that the cash has. That means if you run out of money for Entertainment, you can’t take it out of your Dining Out fund. You can save the money for the next month though, if you prefer.

You can do this if you have a lot of online payments. For example, your mortgage or rent is likely to be taken straight out of your bank account. The same applies to insurance payments, utility bills, and other standing orders that you have.

You’ll need to keep enough to cover those costs each month in the account. You’ll also want to make sure debt repayments, savings, and investments are covered here.

Take the rest out in cash, and then split it across the extra jobs. Groceries, eating out, hobbies, household supplies, personal care, and clothing are among the list of envelopes you’ll have. Split the remaining money you have any way that you see fit.

It’s always worth looking back at the last three months (at least) of spending to see how much you’ve spent in places. This is a great way to curb impulse spending, simplify your budget, and make your purchases more intentional.

You can make everything digital if you’d like. I find a lot of people still end up overspending in certain categories because they don’t keep as close of a track on their spending.

It could be worth trying out the system in physical form first. Then, as you get used to it, you can create a digital method.

Which budgeting method do you find works best for you? Have you tried the envelope budgeting system? Share in the comments below.

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