Are you trying to create a monthly budget but you have no idea where to start? Maybe you tried different kinds of budgeting software or you tried to come up with an excel file to plan your monthly expenses.
The envelope system, or envelope budgeting method, is a popular method that allows you to organize your future spendings into different categories and have a better idea of your budget.
How does the envelope system work?
Traditionally, the principle consists of using cash for all your spendings, therefore creating envelopes for your spending categories and adding a determined amount of cash to that specific envelope. This would mean that once the envelope is empty, you can’t spend any more money in that category.
The same principle can still be applied if you’re not using cash to pay for everything. You can create virtual envelopes and decide how much money to add for each category. Every time you spend money in that specific category, you detract it from the total amount.
Some budgeting apps also give you the possibility of using this method by virtually creating envelopes.
How to set up envelope budgeting?
The first step in setting up the envelope budgeting method is to be aware of how much income you have and what your recurring expenses are. Once you have an overview of how much money you bring home, you can divide that amount between your different envelopes.
The steps to get started are simple:
- Determine spending categories: try to be quite specific when creating categories. You may have utility bills, groceries, dining out, clothing, household items, personal care, etc.
- Create an envelope for each category: use physical envelopes if you plan on using cash or virtual ones if you don’t. You can create an excel file or use budgeting software.
- Divide the money among the envelopes: distribute your whole income into the different envelopes you created. Remember to create an envelope for savings as well as irregular expenses like gifts or taxes.
- Spend money from specific envelopes: stick to the rule. You should pay your bills from your utility bills envelope and go out for dinner from your dining out envelope. Once the money in an envelope is over, you shouldn’t take it from a different envelope. If at the end of the month you have money left in the envelope, you can either leave it for the following month or add it to your savings or emergency fund.
- Start over: at the beginning of the new month or when you receive your paycheck, restart the process.
Budgeting apps using the envelope system
Some budgeting apps can make it easier for you to use the envelope system. Consider using one of the following ones:
There are plenty of other budgeting apps that can help you create a monthly budget and stick to it. Consider trying a few to see which one works for you.