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The Effective Simplicity of Budgeting by Envelopes

Last updated by on December 31, 2013

This is a guest post from Andrea Horn, a personal finance instructor, mom of two boys, and creator of Recession Proof Living.

Want to get out of debt and start building wealth? Then grab some envelopes and get some cash out of the ATM, and start taking notes. I’m going to tell you about an old-fashioned method of money management that doesn’t get nearly enough respect in the age of Quicken,, and online banking, but is in many ways faster, tangible, and more convenient. It’s called (drum roll, please) The Envelope System.

How Budgeting in an Envelope Works

The Envelope System is simple. You decide on categories that will be useful to you, such as groceries, entertainment, gas, or clothing. Decide how much you want to spend on each one for the month (or week, if you prefer). Write the name of one category on each envelope. Put the designated amount of cash in the envelope. Voila! You are now ready to spend. When you buy groceries, pay for it with money out of the Grocery envelope, and put the change back into the Grocery envelope. Ditto for all the others.

When Envelope Budgeting is Practical

envelope budgetingThe envelope system works well for items that can be easily purchased with cash. Food, clothes, gifts, gas, movie rentals, and even larger items like furniture and electronics work well with envelopes. In addition, anything that tends to become an impulse purchase in your household should be put on the envelope system. In my family, that means soft drinks, books, and magazines.

When it’s Not Practical

Some items cannot be easily purchased with cash. For example, it is almost impossible to make a mortgage payment in cash. Luckily, mortgage payments are not usually an impulse purchase! The same holds true for utilities and other bills that must be mailed in or paid online. No worries, just write a check or use your bank’s bill pay service for these items. You don’t need an envelope for every item in your budget, just the ones that make sense.

How to Tweak It

When my husband and I first tried using envelopes, we had a lot of arguments about how to spend the Entertainment money, especially if one of us spent some without us discussing it first. We learned to avoid conflict by having a separate Entertainment envelope for each of us, with equal amounts of money, of course. We also learned never to take the Clothing envelope with us unless we were planning to buy clothes on that trip. It’s too easy to dip into the clothing fund when you run out of fast food money. . .and then have nothing left over for clothes.

Here’s another tip. If you’ve never tracked your spending before doing the Envelope System, estimate on the high side for the first month, especially for food. We ran out of grocery money the first month we tried the system because we had no idea how much we really spent.

We also started using envelopes with our son’s money, one each for spend, save, and give. You will have to experiment with various options to see what works for your family. Good luck!

Envelop Budgeting Discussion:

What simple accounting systems have you used to stay on budget?

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About the Author
I am G.E. Miller, & this is my story. My goal is financial independence ASAP. If you share that goal, join me & 10,000+ others by getting FREE email updates. You can also explore every post I have written, in order.

  • AK says:

    I did this while I was in college and it worked really well! It does curb spending habits… the only this is that I got a little bit nervous with all that cash around.

    For people who don’t have time to track all their little purchases online or in a spreadsheet, this is a great idea.

  • Andrea (Recession Proof Living) says:

    I know what you mean about not wanting to carry a lot of cash. One way to deal with this is to fill your envelopes weekly instead of monthly. That way if (God forbid) you lose your Entertainment envelope, you’re only out the money for one week’s worth of entertainment.

    We found weekly budgeting to be more effective anyway, because it kept us from blowing through a whole month’s worth of money the first week. 🙂

  • Sacha Chua says:

    I use a virtual envelope system that lets me keep money in bank accounts and virtual money in virtual envelopes. =) I mapped my financial network and described the process on my blog. The tool I use to keep track of the envelope balances is super-geeky, but you’d probably be able to do something similar with a spreadsheet or a notebook.

  • fabmoneylife says:

    I’ve been hearing about the “envelope system” for quite some time now, and I think it’s a great idea. I would probably lean more towards using a virtual envelope system, such as a putting a certain amount in a debit card account and using that for the allotted time period. Cash would be rather difficult to track and trend.

  • emergency cash says:

    I just love using the envelope system. For some reason it helps keep me on track when I can see the money put away for certain expenses right in front of me.

  • Norma Horvath says:

    I have been using the budget envelope method for almost forty years. I have a wonderful Budget Envelope Book containing ten budget envelopes. However, my book is falling apart and I can’t find a new one anywhere. It was made by the Springfield Photo Mount Company in Holyoke, Mass. 01040. Apparently, they are out of business. The book is 4″ x 7″ and contains ten envelopes. It is the greatest! Does anyone know where I can find another Budget Envelope book?

  • Dianne says:

    I, too have been using the budget envelope system for nearly 35 years and I was not aware that the Springfield Photo Mount Company had gone out of business.
    My envelopes and getting old and I also need new ones. I would LOVE to know if any other companies make them or if anyone knows where I can find them. It’s a great system!

  • Diane demonteu says:

    I need to purchase 2budget coupon booklets that I purchased many years ago from Springfield photo mount co mine is old and falling apart do you sell them or where can I buy one it is a small binder with budget envelopes in it to save money in for your budget. Please let me know where I can get one thank you


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