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 dates, affordable 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.
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.
|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.
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.
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!
* The following sites were referenced for some of the contents of this post: Money Crashers and Financial Web