Budgeting: The Envelope System

I have never thought of budgeting before. I have always spent here and there without keeping track of where my money was going. Usually I just look at my savings account and say to myself, “Ah, I still got enough money...” which actually leads towards more spending!

This went on and on that every third week of the month I always end up being broke. This got into me so I thought of ways on how to overcome this problem. That’s when I found out about the envelope system.

The name envelope system or envelope budget actually was derived from, well, envelopes. Back in the days where there were no credit cards or ATM Cards, a lot of people use a method where they distribute their money into envelopes. Each envelope has its own use or spending. Apart from being easy to track, it also involves the less amount of calculation required. And gives you the ability to control the amount of money you spend on a category.

Since I wanted something less complicated, I tried this out and it made me realize how much money I am spending and where. It allowed me to control my spending-honestly most of my spending were on food. Apart from helping me track my expenses, it allowed me to save money as well!

Below is how I setup our envelope system.

Identify your expenses

 I listed all the expenses that I have on a monthly basis starting from the house rent to food expenses to car gas expense. I put all including the smallest expenses that I make. This will give you a view of what is your spending on monthly basis.

Categorize your expenses and put each category in an envelope

Once I find out my expenses, next time I did is to categorize them. Categorization allows you to organize your expenses. This will help to easily manage each expense later on. Then After categorizing your expenses, its now time to put a label on the envelope. In my case, some example of my labels includes Home Food-this envelope contains an amount to be spent for food at home. Another one is car maintenance- this includes ANY expense for the car should fall under this category. I also have another one which I copied online which is fun money-this should contain any expenses which is free of guilt. Eating out, going to the cinema with my Hon, anything that is not going to be in the other categories.

Set up a budget for each envelope

I then set up a budget for each envelope based on the importance of each envelope. TIP: make sure to be realistic when setting up a budget. The best way to do it is by setting importance to each envelope:

Example:

House Rent

Utilities

Home Food

Car Maintenance

Grocery

Clothing

Fun Money

I have arranged the above in the first being the most important and the last being the least important. In that way, you can make sure that as you go through each envelope, you can put priority on the important envelopes first. Take note that as you go through using the method, there will be times where you will have unbalanced money (given the assumption that you have extra cash at hand or you didn’t spend all your money on an envelope) - you can then use that extra money to add to your savings or just carry forward that extra money on that envelope from last month.

Spend only what is in that envelope for that purpose

When it’s gone, it’s gone. Don’t try to cheat yourself by moving over some of the money from one envelope to the depleted one.-This will test your self-discipline and control over money.

TIP: Keep track of where your spending your money. Come up with a list where each penny go. Collect receipts. This allows you to find out where exactly your money goes each month. This also allows you to set up a goal and see if you can lessen your spending on that category by eliminating unwanted expenses.

Give it time and Adjust

It will take a few months before you get used to the envelope system. It takes time to adjust to it and get it done perfect. It took me 3 months to get used to this system and this allows me and my hon to control our spending too.

So far this system is working great for us. It’s easy to use and you don’t need to spend hours setting it up. If you don’t current have a budget or would like to track where your money is going, try this out and let us know what you think about it.

You can always check my post here about dsbudget. This allows you to keep track of your money and I find it easy to pair with the envelope system.