On Wednesday I talked about all the reasons why I love using the envelope system to help me stay on budget. Once the system is in place, then it is simple to manage. Swiping a debit card is easier than keeping up with cash, but I always end up spending more than I intended when I use our debit card. Cash keeps me from overspending money that I could be using to pay on our debt.
Here is how to use the envelope system.
1. Decide to use the envelope system
Everyone needs to be bought in or it won’t work. One spouse could use the system, but the whole thing works better if both spouses are bought it. It will save you a fight when you have to turn the car around to get the forgotten envelope system.
2. Decide which budget categories to track
We use the envelope system for these categories:
- groceries
- dining
- clothing
- personal care (hair cuts)
- entertainment
- gifts
- blow money
We don’t use cash for gas or our books categories because it’s easier to pay at the pump and buy books online.
3. Decide on a type of envelope system
We use an old FPU envelope system that has all the envelopes spiraled together with a place for change in the back. Some people like to keep all the envelopes separate so you can leave the envelopes you don’t need at home. You can also use a small accordion envelope system. The type of system is up to your personal preference.
4. Fill’er up
Go to the bank, pull out the cash, and fill the envelopes. You can write on the outside of the envelope how much money you put in. The denomination of the bills is up to you. While pulling out a Benjamin is fun, it isn’t always practical. I like getting smaller bills.
5. Use it
When you are at a store count your cash, then keep a tally of your purchases. A tally will save you the embarrassment of putting items back when you have gone over your spending limit.
I don’t keep receipts or record how much I spent, but if you do it can help you look back on your spending and make adjustments the following month.
Don’t pull from other categories when you are out spending the money. I did this once and ended up writing IOU’s all over the envelopes and everything got messed up. Only borrow from a category when it is absolutely necessary.
6. Stop spending when the envelope is empty
If you need more money in a category then have a quick budget meeting with your spouse. Don’t use your debit card when you run out of cash. In the meeting you can decide if this is a need or a want and then either pull money from another category or you decide to leave the envelope empty until the next pay period.
The whole point of the envelope system is help gain control of your money instead of wondering where it went. If you hate using the system, then figure out a way to tweak to your liking. Some couples can use their debits cards and stay under budget, but I am not like that. Daniel and I aren’t always perfect at being super strict with the envelope system, but we love that it keeps our spending in check when are using the system the right way.
How do you use the envelope system? Do you like having all the envelopes in one place or stored separately?
We use the envelope system and it definitely helps us be more conscious of how we spend our money and we are always SO much better at staying within our budget when we use cash. I think having to look and see how much/little is left in the envelope is a huge part of that.