The Envelope Method: An Old Budgeting Trick That May Save Your Finances

Money plays a very crucial role in the world today. Though people may argue how important it actually is, the honest fact is that having money can make things easier on you. A lot of people out there have the money they need but somehow still can’t seem to make it go as far as it should. For those of you out there with that problem, envelope budgeting may be for you.

Envelope budgeting was once a commonplace budgeting style. The idea was simple yet effective. You would simply separate your cash as soon as you received it, so you would know where it all needed to go. Now that most people are using bank accounts or credit cards regularly, all of their money is often placed in one lump sum. This can sometimes make you forget how much of your money is actually still yours.

Your first step should be to find out what necessary payments you need to make. Payments such as bills, groceries, fuel, and other things you consistently need. Once you’ve decided on how much money goes to these individual payments you should write them down and keep them separate. You now have several smaller payments set out rather than one large “bill” hanging over your head.

The second step to envelope budgeting is to find a way to separate your money. The easiest way to do that is to simply withdraw it in cash. Once you have an actual visual on your money it becomes easier to understand just how much of it belongs in certain places. Now, this is where the envelopes come in. You should label an envelope with the name of each bill, payment, or allowance you discovered earlier. Now, simply place the right amount of cash in each envelope. Whatever is leftover is, just that, leftover. This is your spending money or saving money. However, you see fit.

Now each time you go to make a payment you should ask yourself which envelope the money should come out of. You should never skim out of any of the envelopes for anything other than it’s intended purpose.

If you still feel that you don’t have enough money to get by, then you should look at your payments and see if there is anything you can live without. Perhaps you can’t really afford the highest speed internet or the best cable package right now. You’ll be able to see where your money is going and decide if you think it’s acceptable.

Getting all of your money in cash isn’t always an option. But that’s okay. There are other ways to use this method. You could simply divide your money into multiple accounts. But that gets confusing and dangerous fast. The best way to use envelope budgeting without using cash is to pretend you are using cash. Still, write down all of your necessary payments. But now whenever you spend any money you need to subtract whatever you spent from the number you have written for that bill. If you accounted for $50 worth of gasoline and you bought $20 then you should change your gasoline number to $30 afterward and so on.

This method may seem like a lot of work at first. But it will force you to keep a closer eye on your spending and that will be worth the effort. Just never let yourself slack with this idea. If you miss anything at all it could cause some serious problems down the line. Always double check yourself.