Alright royals, it’s time to dive into a discussion about money. I while ago I told you all I wanted to focus on encourage you to live fabulously without spending all your hard earned coins. So far you’ve gotten ideas for inexpensive datesaffordable beauty product suggestions, and a myriad of budget-friendly outfit ideas, but we haven’t explicitly discussed money. Well as of today, that’s changing! There are so many different ways to budget money and in my opinion there is no right way. I think it’s best to learn about a few, maybe even try them, and see what works best for you and your family. Today is going to be all about the envelope budgeting system. Maybe you’ve heard of it, maybe you haven’t, but I’m going to cover the what, why, and how of this popular method of budgeting money.

envelope budgeting system

What is the envelope budgeting system?

This method of budgeting involves a series of labeled envelopes with a specific amount of cash in each one. This method helps users visualize and maintain their budget. Very simply put, cash is physically stored in various envelopes and when the money runs out users can no longer spend from that category.

How do I use the envelope budgeting system?

The first step is writing out your budget. You can do this by week or by month, but I’d suggest you do this according to how often you get paid. Determine your discretionary income (the amount you have after all your bills are paid) and then decide how you will categorize this income. Common categories are things like groceries, gas, eating out, and fun money, but there are no bounds here. Money Crashers suggests looking at an old bank statement to see exactly how you’re spending your money to decide how much to dedicate to each envelope. Once this is done, grab envelopes, write the category on the front, and add the appropriate cash to each. When the money runs out of an envelope that means you’ve spent all that your allowed to for that pay period. If you have any funds left over you can put it into your savings account or pay off debit.

Why should I use (or not use) the envelope budgeting system?

Like all things in life there are pros and cons to the envelope budgeting system. There is no way to really know if it’s ideal for you or not until you try it, unless you know that you don’t do well with cash.

PROSCONS
No Overdraft Charges

Many people get hit with overdraft charges when they overspend by using their debt card. This is impossible with this system, because once the money is gone, it's gone.
No Rewards/Incentives

You will not be given any cash back rewards just for using your card at a certain retailer.
Easy & Simple

This system is great for someone who has simple finances.
Lack of Security

There isn't much you can do about stolen cash
Gives you control and discipline

The longer you use the system, the more in control and disciplined you will feel. Having an allotted amount to spend on things will make you much more careful about what you purchase.
Inconvenient

Using cash for everything means you can't make online payments. Also, it's never a good idea to send cash in the mail so you may end up having to make deposits to pay your bills via checks.

The way I see it, no bad can come of trying the envelope budgeting system. Trying it can’t put you any further back than where you were before you started. Who knows, you may find out that you love it and it works really well for you and your family.

Have you ever tried the envelope budgeting system? Do you know of or use another method for budgeting? Please share your experience in the comments!

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* The following sites were referenced for some of the contents of this post: Money Crashers and Financial Web

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16 comments on “The Envelope Budgeting System”

  1. Love this idea. It’s so important to take your money seriously, you never know what emergency may occur that will make you dip into savings. It’d be a big problem if they weren’t there!

  2. I love using the envelope budgeting system for vacation! We are heading to Disney this fall and I already have several envelopes labeled and I am putting a little money in each one. By the time we go all our expenses are put in each envelope. Every meal, mousekeeping tips, special events are budgeted and have money set aside!

  3. I am budgeting for Disney and to pay my student loan off and regular savings does not work for me! I think I will try this system and see if it helps me out. Thanks for sharing!
    Kiersten @ Autumn Country Girl

  4. When we lived in the states we actively used the envelope system. However since moving to Norway we just our debit cards and stay within our budget.

  5. I have never done it myself but I have seen other people use it very successfully. My problem is I never have cash and getting it would be a pain to put it in the envelopes! 🙂 But I am interested to see if it helps a long term solution.

  6. This is a great system. I used it until I started using my credit card to gain points and cash back rewards (that I put towards a vacation every year). I finally got my cards paid off so now I use one to pay all of my bills & pay it off with the money I move into savings every week at the end of the month.

  7. Very interesting. I just finished reading Sarah Ban Breathnach’s latest book on finance: Peace and Plenty: Finding Your Path to Financial Serenity, and she included the method in her book.

  8. My husband swears by this as this is how he saved before we met, so we have just adopted the system to save for a holiday later in the year and so far it is really working great for us!
    We did rely on our credit card a lot before this, to get points, but I think its a dangerous habit!
    Thanks so much for sharing 🙂

  9. The envelope system can be a great budgeting technique. one of my preferred methods is to use 2 bank accounts, one for bills and one for spending. Adding up my monthly expenses and divide by 4, depositing that exact amount (or slightly more for padding) into my account for bills, the remainder goes into my “spending account” which i also use as my savings. this has worked great for me over the years. i share some other methods on my blog http://www.wisemoney.net, check it out if you get a chance and let me know what you think in the comments.

    Great blog with good content, keep up the good work!

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