Budgeting

When you're looking for ways to help with your personal financial plans, you will likely hear talk of a strategy known as envelope budgeting. Although it's straightforward and simple, envelope budgeting can be a very useful way to save your money.

What is envelope budgeting?

True to its name, envelope budgeting involves setting a budget for your various expenses, then using envelopes (or digital versions of them) to help you stuck to the budget.

To get started, you first need to determine your monthly budget & expenses. Some are easy, such as fixed installment payments like mortgage or rent, car payments, and loan payments. Others take some careful planning, such as grocery expenditures and "emergency" funds.

Once you've got a budget planned, decide how you'll do your budgeting. Some find that envelopes themselves make budgeting easiest, especially if you prefer working with cash. Software and spreadsheets are also available to help the more digitally inclined.

Each month, set out envelopes with the names of your budget areas and your budget for them. You might have a dozen envelopes labeled with expenditures like rent, utilities, phone, and others. Also be sure to write the budget amount on the outside of the envelope. And when you get paid, add the appropriate amount of money to its respective envelope.

When the time comes to pay your bills or go shopping, simply take the money from the appropriate envelope.

How can envelope budgeting help my personal budget?

By physically keeping your money separated into individual budgets, you help to make sure that all of your expenses are covered each month. Ever let a phone payment or utility bill slip through the cracks? With envelope budgeting, you make sure every expense is accounted for, and that the funds are available to cover them.

Envelope budgeting also helps you identify areas where you can save money. If you find that your dining out & entertainment costs are sky high each month, try moving some of that budget to your grocery envelope and some to savings. You'll save money, and keep things more moderate across the board.

We also recommend an extra envelope for emergencies & unforeseen expenditures like car repairs, appliance breakdowns, and other areas that can set you back if you aren't repaired. Add to this envelope each month, but only spend out of it when you need to.

Do I really need to use envelopes?

That's up to you! Some people find that using cash and envelopes helps them stick exactly to their budgets better. There are software programs and spreadsheet templates available to help you manage an envelope budgeting program digitally, which may be really useful for those whose paychecks are direct deposited.