Envelope Budgeting – Low Tech Method Controls Runaway Spending
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In this day and age of using high tech methods to manage a household, you will never be at a loss for finding ways to develop a budget for your family. And there are many wonderful online budgeting tools that work well.
However, for some folks, the simplest budget method may work the best. If you have been making a budget, but still run out of money every month, you may want to give a ‘low tech’ method a try. Perhaps you saw your grandmother or mother organizing her budget this way. It’s the envelope budgeting method.
This is basically a method to control your family’s flexible spending, since this is the type of spending that often gets the budget in trouble. Unlike fixed expenses (mortgage, rent, utilities, insurance, etc.) which are usually paid first, flexible expenses can be like a slow leak in your budget bucket. The money keeps trickling away – checks are being written, debit cards are being swiped, and worse, credit cards are being used to buy everyday items. This is really when the trouble starts.
How do you avoid this? By setting up envelopes with cash to cover the flexible expense. Yes, I said cash.
Some people may feel a little uncomfortable at first with this method. It may be a bit old fashioned, but if your budget keeps failing, this may be the only way to plug that leak. Desperate times call for desperate measures.
Are you ready to finally put an end to over-spending and ruining your budget each month? You may want to give the envelope method a try.
Here is the basic idea:
1) Start with the budget you already have. Be sure you subtract your fixed expenses from your income to find your net income, also called discretionary cash, available for your flexible spending. Make an envelope for every flexible expense you have in your household, using your existing budget as a guide. Flexible expenses include things like groceries, gas, lunch money, haircuts, entertainment, etc.
2) Once you have determined how much discretionary cash you have to spend on flexible expenses, get cash out of you bank account and put the cash allotted for each type of expense in the corresponding envelope. Use the cash only throughout the week or month to purchase your household and personal items.
3) Any money left in the envelopes when the month is over should be used to pay down debt, if necessary, or put in a savings account. You’ll want to routinely re-examine your budget to take into account any errors or new items for the month.
The system will work if you keep one thing in mind; when the money is gone, it’s gone. That means no digging into the credit card to make more purchases. By limiting your spending to whatever amount is in the envelopes naturally puts a halt to over-spending, and will finally put a cork in that leaking budget bucket!
What do you think? Have you tried using a method like this for budgeting? Please share your thoughts by commenting below. I’d love to hear from you.
Consumer debt can be blamed for most failed family budgets. Credit cards will send any budget into a downward spiral very quickly.
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