Money Envelope System

Are you looking for a way to make budgeting easier?

Well, here’s the good news—your search is over! The money envelope system is a simple, proven, and powerful way to control spending.

Elevate Credit Union is proud to bring you this guide toward implementing the money envelope system in your household.

1. Determine your monthly income and expenses

For the next few months, track all your expenses. Hold onto every receipt or record each purchase you make, indicating which expense category it falls under. Hold onto every pay stub as well.

After three months, determine exactly how much discretionary income (what’s left after all fixed amounts are paid) you’re left with each month.

2. Create a budget for every expense category

Divide your discretionary income into different categories: food, entertainment, transportation, and clothing costs. Then, review how you’ve been spending your money in the last few months to show you how much you’ll need to set aside for each category.

3. Create your envelopes

Divide your discretionary income into different categories: food, entertainment, transportation, and clothing costs. Then, review how you’ve been spending your money in the last few months to show you how much you’ll need to set aside for each category.

4. Stick to your budget

As in any system, following through is the hardest part. With the envelope system, though, it’s a whole lot easier.

Say you need to make a grocery run. You’ll peek inside your “groceries” envelope, note how much cash is inside, and figure out how much you can afford to spend. Take that money to the store, and only use that cash. No card-swiping is allowed, and no sneaking money from another envelope either.

This way, you’ll be forced to stick to your budget.

5. Reward yourself!

If you find extra money in any category at the end of the month, it’s OK to celebrate with dinner or an expensive drink. Alternatively, you can treat that money as “rollover cash” and use it to enjoy a roomier budget next month.

Tips and tricks

Here are some variations and different approaches to this ingenious system:

• Use a small accordion file folder instead of individual paper envelopes.
• Hate the thought of only using cash? Some apps help you create virtual envelopes, such as Qube Money. You can also use a cost-free budgeting app like Intuit Mint or GNU Cash.
• Trim your fixed expenses. If you’re finding it difficult to stick to your budget, try to cut back on your non-discretionary spending. Add the money you save to the envelopes that always seem ill-supplied.
• Create an emergency envelope. Set aside $20 or $50 if another envelope runs out of money.

Congratulations! You’ve got the money envelope system down, pat!