The Envelope Budget

So, you’ve created your budgets and are all ready to go.

How do you ensure that you adhere to it?

Ever spotted the lady before you paying for her Zara splurge from cash she took out from an envelope?

Did your wife tell you to take out cash from the Repairs envelope to pay the plumber and not the one that had Grocery written on it?

Let me introduce you to the “Cash Envelope Method” of Budgeting.

It’s one of the best methods for someone starting out on their journey towards personal finance management.

Let’s dive right into it and see what all this fuss is about.

What are you supposed to do?

You’ve set your budgets and split them into categories. Now all you need to do is grab the envelopes for the categories you’ve created.

We like using cash because it puts us back in control of our money.

Remember to not create more than 6-8 categories for starters. You may burnout if there are too many. You may choose the categories where you feel you are not able to control your spends.

Write down the category name on the front along with the budget set aside and fill up each of the envelopes with equivalent cash.

Make sure you have an envelope for the “fun” category. You may want to keep a check on the number of dinners you’re eating out.

Eg : Grocery, Date Nights/Eating Out, Shopping.

You then have to ditch your plastic money. Yes, go hide them somewhere out of sight, temporarily.

You need to assume that this is all the money you have available to spend for the month.

If you’re not comfortable keeping all the cash with you at once, you can split your budget weekly or fortnightly. Withdraw just that much cash that you need for the week or whatever cycle you decide to follow.

What if you have some bills to be paid online?

If you want to pay bills online or transfer money into a Savings account, pay those at the very beginning of the month, then take out cash for the remaining expenses after those bills have gone through. You can also create an envelope for online payments. Jot down the budget for each category and as you make payments you can write it on the envelope. It’ll help you stay on track, while still allowing you to pay online.

How should you pay the bills?

Now that you have everything in place, are you wondering how to pay the bills?

Going for a grocery run? Pick the envelope that says Grocery and pay for everything from that available cash.

Heading out for a movie? Carry that Entertainment cover.

Can’t decide if you have enough money for the 5th date that month? Go check the envelope that says Date Night and decide if you should be heading out based on the available cash.

If you are running out of cash in a particular category, evaluate if that expense is absolutely necessary. Ideally, no purchases should be made once the cash is over in that particular envelope. Be careful not to borrow from the other envelopes.

DO NOT WITHDRAW MORE CASH unless it is an Emergency.

In case of an emergency, recruit an accountability partner (spouse, friend- anyone who is on-board with your monetary principle) and conclude the need for extra cash. Then depending on what’s available in the other stash, you can borrow from the other envelope.

Remember, the whole purpose of the envelope system is to control your spending and help you stick to your budget.

What could you do with the change?

Grab a jar and put in all the change in that box.

Once that jar is full you can use it for something fun, or pay off a debt or add it to a vacation fund. Anything that you’d like.

You will be surprised how much that could add up to in the long run.

What did you learn?

  • The number one takeaway from this method is to learn to live within your means. When you run out of cash, it is a wrap on the spending for that category. It restricts you from overspending and you know when to stop.
  • It forces money discipline and you are held accountable. You will start to pay attention to where you are spending money.
  • It keeps you on track with your budget. Adjust your budget for the following month based on how the last few months went.

And no that’s not a wrap yet.

If you still have some money left in the envelopes (yay!!), go watch a movie or grab a beer, or add it to the shopping budget for next month.

Reward yourself as it will only help you stay motivated. You have to celebrate those little wins along the way!


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