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Envelope Budgeting – Low Tech Method Controls Runaway Spending

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.

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Lisa - May 23, 2012

I just wanted to say that my husband and I use the “envelope budget system” and it works GREAT!! It was a little hard to get used to at first – we were debit card junkies before we started this. But once we got the hang of it, we made sure we always have cash on us. I have had to put an extra envelope in his car because he was not used to carrying cash for gas. We have been doing this for 2 years now and I can’t even imagine using a debit card for food or gas now. For anyone who is interested, these are what my envelopes are labeled: Groceries, Husband Gas, Wife Gas, Household (this would be things like Tide, Deoderant, non-edible items), Clothing (we let this one build up and only go on shopping trips every 6 months or so), Drycleaners, Dining out, Christmas/B-day gifts (we allotted a certain amount per person per gift, added the yearly total and divided by 12 – that is how much goes into this envelope per month), Auto. We used to have a Kids School envelope, this was used for sports and school clothes, but we have added those expenses into the Clothing envelope now. Hope this helps someone. I know that this method has been a total blessing to our finances :)

Kath Balestrieri - May 23, 2012

I used the Envelope method when I was a young adult and hadn’t opened a bank account.

I was renting a room in a home full of friends and got paid weekly. I had an envelope for rent, one for electricity, one for the phone and one for natural gas. Most months having 4 weeks, I’d take 1/4 of the rent and put it in the “Rent” envelope; 1/4 of the electricity bill went into the “Elec” envelope, etc.

May sound overly simple, but never did a bill come due when I didn’t have my share to cover it.


    The Hillbilly Housewife - May 23, 2012

    So “overly simple” it works! Thanks, Kath, for sharing.

Angie - June 10, 2012

Using the Envelope Method now for 3 months and I love it. Never thought something so simple could have such an impact. My whole financial situation is so much better now. No more energy spend on worrying how to pay the bills.

    The Hillbilly Housewife - June 10, 2012

    I am so happy for you, Angie.

KD - July 7, 2012

My ex-wife and I used this when we were going to college. We got our student aid checks once every three months and made out money orders (from the post office) for our monthly fixed expenses and then divided them out by month. Currently I use the same system for discretionary (four envelopes -one for each week)

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