Old Fashioned Budgeting with the Envelope System

Today there are any number of different high-tech ways to budget ranging from budgeting software programs to online budgeting systems included with your bank account. However, one of the most efficient and tried and true methods of budgeting is using the good old fashioned envelope budgeting system.

To budget with the envelope system you don't need a computer or any high-priced, high-tech gadgets or software. Instead, all you need are some envelopes.

Here's how it works. Start by making a list of all of your expenses that you pay each month. Some ideas to get you started are your power bill, phone bill, television bill, water bill, garbage & yard waste, babysitter, groceries, gas, pet supplies, household cleaners, personal care items, Internet service, car maintenance, cigarettes or alcohol, meals out, entertainment or anything else that you spend money on regularly.

For each item on your list, take an envelope and write the name of the expense on the front of it. Determine how much money you need each month for each of the expenses and write that amount on the front of the envelope next to the name.

Next, get a pile of cash and split it up between all the envelopes, putting the correct amount in each one.

Stack the envelopes, wrap them with a rubber band and put them in your freezer (or in any other safe place.)

Now, your goal is not to spend more money during the month than you have in each envelope. So for instance, if you decided to budget $200/month for groceries, you would put $200 cash in the grocery envelope. That would be all the money that you could spend on groceries for the month. That means you would need to shop wisely to be sure there was still cash for groceries in the envelope when the end of the month rolled around.

The main benefit of this system is that it really forces you to stick with your budget and it is easy to see how you are doing with your spending. By using cash instead of credit or debit cards it is harder to spend more than you had originally budgeted and easier to see where your money is actually going.

Being forced into sticking with your budget is actually a good thing. As you practice it you will get a feel for what it is like to follow a budget and monitor your spending. Eventually you will find that your old bad spending habits are slowly being replaced by better spending habits.

Finally, it is a good idea to create an envelope of "fun money" as well that you can spend on anything you want. If other family members are participating you could set up a fun money envelope for each family member. Just make sure that everyone in your family knows that the money in their envelope is all they are getting for the month and that once it is gone it is truly gone. This is a fun way to get the whole family involved in budgeting and to teach children more about how to manage money.

While the envelope budgeting system certainly is simple, it is also effective and easy to implement making it a great choice for many people trying to learn how to budget.