Envelopes for Budgeting

People start budgeting for a variety of reasons including saving money and to avoid living paycheck to paycheck. You can use several methods to start budgeting. If you want to get better control over your money, consider using envelopes for budgeting.

Process

The method of using envelopes for budgeting involves withdrawing cash at a pre-determined date in the month and then separating the cash into individual standard envelopes. You label each envelope for each bill or need, such as "Electric Bill," "Cable," and "Entertainment." When the bill comes due, you take the cash out of the envelope and pay the bill. In the case of money for entertainment, groceries or other needs you're limited to the pre-determined amount for that period. When the money runs out of the envelope, you must sacrifice until the next period to refill it with more cash.

Purpose

The purpose of using envelopes for budgeting is to better manage the money you earn. When using debit cards or checks to purchase items and pay bills throughout the month, you can easily overspend or fall outside of your budget. When you simply withdraw one lump sum to pay all of your obligations and then categorize it, you may have a better chance of staying committed to the budget.

Cash in Hand

Having cash in your hand might make it more "precious" to you in a way. When you see the cash you're more reluctant to give it away for frivolous needs and so you spend less. Alternatively, when you use plastic or a check to buy items, you don't get a chance to look at, feel and appreciate the cash that you've earned in your hand before deciding to spend.

Suggestions

In some cases it is fine to add a check to the envelope system, particularly in the case of large bills such as mortgage, rent or a car loan payment. So put cash away in the envelopes for the small bills and pay the large bills with a check (physical or online). For an envelope such as groceries or entertainment that requires regular withdrawals, write the reason for withdrawal on the front of the envelope so that you can keep track of how you're spending that portion of your income.