Envelope budgeting is an organized and simple method of saving to pay bills. You can use actual envelopes labeled with each spending category, such as: “Electric bill,” or “Savings for vacation.” There is also personal finance software that is created on the idea of envelope budgeting. Either way, envelope budgeting can be a powerful way to put you in control of your spending.
To use envelope budgeting, first set up spending categories for your budget. Then set spending limits for these groups. When you add up the spending categories, the total must not be greater than your pay check for that period of time. You can use whatever time period works best for your budget.
Using one envelope per spending category, write the name of that category and the monthly budgeted amount on the outside of each envelope. If you are paid weekly or bimonthly, divide the total monthly amount for each spending group by the number of pay periods you have. Write that that number on the envelope as well; for example, “Groceries, $250.”
Although most people have their paychecks deposited directly, let’s use cash to demonstrate the idea of envelope budgeting. Cash your paycheck, and put the designated amount for each budgeted category into the designated envelopes.
When you need to go shopping or pay a bill, simply take the money needed from the appropriate envelope. The benefit of traditional envelope budgeting is that it keeps you focused on your spending habits. Once the money is gone from the envelope, you cannot spend from that expense group until you add to the envelope from your next paycheck.
Envelope budgeting software uses virtual envelopes or other graphics for expense categories. These graphics show spending activity and balances for spending categories. The software distributes “cash” to each envelope as you record income. It can also be set up to help you keep track of credit card spending. This method could work well if your paycheck is deposited directly, but if you can try the method with cash, for the first time at least, you will quickly learn the method.
Whether you decide to use actual envelopes or computer software, envelope budgeting is a simple and effective way for you to take control of your finances!
Donna earned her bachelor’s degree at the University of Massachusetts at Boston with a major in psychology, and a minor in education. She holds a master’s degree in special needs from Lesley College in Cambridge, Mass. She subsequently earned her certification as an environmental educator in North Carolina, and enjoys empowering people to create an earth-friendly lifestyle that supports sustainability. She also likes creative writing, furniture upholstering, flower arranging, drawing, and dancing. She is an organic gardener, and also is an animal lover, having several cats. She spends a lot of time appreciating nature, and is especially fond of the beaches of Cape Cod, the mountains of Maine, and the rivers of North Carolina.
- What is envelope budgeting? - December 26, 2013
- How to request your annual credit report - December 26, 2013
- What is a mechanic’s lien? - December 26, 2013