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Take that amount of money to the store with you, and only use that cash. You’ll peek inside your “groceries” envelope, take note of how much cash is inside, and figure out how much you can afford to spend. With the envelope system though, it’s a whole lot easier. Now, put the exact amount of cash for this month in the envelope for each category.ĭo this with every expense category, and voila! You’ve created your new budgeting system!Īs in any budget, following through on a plan is the hardest part. Instead of having money set aside for each category in your head, or even scribbled on a paper somewhere, take one envelope for each expense category and mark it clearly. This is where the money envelope system differs from a regular budget.
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If you see you’ve been overspending in a certain area, this is a great time to resolve to cut back. Review the way you’ve been spending your money in the last few months for an idea of how much you’ll need to set aside for each category. The categories you need and the amounts you’ll set aside for each will depend on your individual lifestyle and habits, but you’ll likely need categories for food, gas, entertainment, transportation and clothing costs. Now, divide your discretionary income into different categories. Create a budget for every expense category This will not include fixed amounts, like insurance premiums, mortgage payments, savings and investments.Ģ. When a three-month period has passed, you’ll sit down to figure out exactly how much discretionary income you’re left with each month. Hold onto every receipt or record each purchase you make, being sure to indicate which category of expense it falls under. Determine your monthly income and expensesįor the next few months, track all of your expenses. Note: If you already have a workable monthly budget, you can skip to step 2.ġ. The money envelope system has been around for years, and it’s an incredibly motivating and powerful way to keep spending in check.ĭiamond Valley Federal Credit Union is proud to bring you this handy guide to understanding and implementing the money envelope system in your household. If you’re like many of us, you’ve been trying to stick to a budget for a while, but by the time each month is over, you’ve busted your budget – again.īecause of this recurring pattern, you’re probably wondering if there’s a better way. Money Envelopes are a low-tech way of helping you plan a budget!