Sometimes it can be difficult to stick to a budget. The idea seems simple enough. You might say, “I don’t want to spend more than $100 on groceries this week” or “I’m bringing lunch to work every day this week.” But things happen. Maybe you forget. Maybe you find an unexpected deal. Maybe you get hungry at work. Maybe it’s that you’re not seeing the big picture of your spending. In that case, you could try an envelope system.
The envelope system is pretty much what it sounds like. It’s a budgeting method using envelopes to allocate how much money you want to spend in different categories. You can have a grocery envelope, an entertainment envelope, a restaurant envelope, etc. Basically any variable expenses you have can be added to the envelope system. Things like rent, utilities, and car payments can be excluded if you want. That money should be considered untouchable. The envelope method is more helpful to manage your discretionary expenses. Here’s how to use the envelope system:
- What are you allowed to spend? To figure out this amount, you need to have a budget. This will tell you what you typically spend and what you can actually afford. Create your budget using ACCC’s Budgeting Worksheet.
- Withdraw the money. The envelope method is based on using cash for purchases. This way, you are seeing a clear picture of what you spend. When the cash is gone, it’s gone.
- Envelopes. Get an envelope for each of your spending categories and label them appropriately.
- Allocate. Based on your budget, determine how much you want to spend in each category. Put that amount of cash into that category’s envelope.
- Spend! Use money from the envelopes to spend money on their respective categories. When the money is gone, you cannot buy anything else in that category.
- Save! Any leftover money should be added to your savings.
And that’s how to use the envelope system. It sort of works like an allowance. Give it a shot if you’re trying to spend less money. It may take a few months to nail down the appropriate amount you should add to each envelope. Just try not to give yourself too much to spend. That kind of defeats the purpose. Keep your allowances as low as you can bare, and watch the savings pile up!