In today’s card-swiping culture, it’s easy to lose track of where exactly your hard-earned money is going every month. Believe me, I know from personal experience! Budgeting and keeping track of money have never been my strong suits. So every once in a while, I have to make a concerted effort to get my spending and budgeting back on track. And since the holidays tend to have everyone strapped for cash, I thought we could all get back on track together! :-)
The budgeting system I want to share with you today is not new—not by any means! You might know about it because of Dave Ramsey and his Total Money Makeover plan, but people have been using “envelope budgeting” to keep track of their money since the days of the Great Depression! And this system still works just as well now as it did back then. And today we’ll explore how this low-tech budgeting system can help you regain control over your financial state quickly and easily! :-)
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How To Use The Envelope Budgeting Method
Fixed vs. Flexible Spending
The words “budget” and “budgeting” are both kind of a bummer to hear, but outlining a budget is the first step toward figuring out your finances! Start by making a list of your fixed monthly expenditures, like your rent/mortgage, car payments, loan payments, utility bills, etc.
Since those expenses are fixed, you won’t be factoring them into your envelope system. Those can come out of your checking account every month on auto-pay, or however you prefer to pay for them. Everything else is flexible spending, and with the envelope system, you’ll be paying for those purchases with cash. (It “hurts” more to fork over cash than it does to swipe your debit card, so dealing with cash can make it easier to stick to your budget!)
Set Your Budget For Flexible Spending
Once you know how much you spend on fixed expenses every month, you can start figuring out your budget for your cash envelope system. Subtract your monthly fixed expenses from your total monthly income. And if you save a certain amount of money each month (which everyone should), subtract that amount from your income as well.
- Total monthly income – Fixed expenses – Monthly savings = Cash for your envelopes!
Fund Your Envelopes
Now that you know how much cash you have to work with, you’ll want to determine how much of that cash you’ll allow for each spending category. Here are some examples of common spending categories you can use:
- Car maintenance
Write the name of each category on a separate envelope. Then set a reasonable spending limit for each category based on your budgeting goals. And finally, fill each envelope with the money allotted for it in your budget. (For example, if you set a $100 spending limit for clothing, put $100 in cash in your clothing envelope for the month.)
Go Forth And Spend (Within Reason!)
Go about your routine and use the money from the appropriate envelopes to cover your cash purchases. And once you’ve spent all the money in a given envelope, you’re done spending for the month! (You can “borrow” money from another envelope/category if there’s some leftover, but no extra trips to the ATM!)
And it might take a few months to really get the hang of your envelope budgeting system. Be patient with yourself, and don’t give up! You’ll fine tune it in time, and the results will be SO worth it! :-)
Have you tried the envelope system, or any other budgeting system? Which one is your favorite?