Create a budget.
In order for the envelope system to work, you need to know how much money you have coming in and how much money you have going out. Start by creating a budget that reflects your current financial situation.
Divide your spending into categories.
Look over your budget, and divide it into areas of spending: food, gas, clothing, entertainment, etc. Then create an envelope for each category. No need to be fancy; a plain, white envelope with the category written on the front will do.
Fill your envelopes
Fill each envelope with the money that you've allotted to that particular category.
Spend until the money is gone.
Pay for your purchases out of the appropriate envelopes – using the food envelope for food purchases and the clothing envelope for clothing purchases – but only until the money is gone. At that point, all spending in the drained category must cease until the next month.
Put any leftover money into savings.
If you have any money left in your envelopes at the end of the month, add it to your savings or use it to pay down a debt.
Refill again the next month.
Refill the envelopes, and start again. Each month is a new shot at making your budget work.
Tweak your category allocations over the first few months until you arrive at numbers that work for you.
If you're not used to paying for your purchases with cash, it may take a few months to adjust to the envelope system. Don't beat yourself up if you run out of money before the month is over. Just try harder to stay on budget the next month.
If a monthly envelope system doesn't work for you, try a weekly or bi-weekly envelope system. The goal is to create a system that works for you.
Does the idea of carrying cash make you nervous? No problem. You can use your debit card and still use the envelope system. Just subtract each purchase on the back of the appropriate envelope, and stop spending when you get to zero.
Create a budget.
In order for the envelope system to work, you need to know how much money you have coming in and how much money you have going out. Start by creating a budget that reflects your current financial situation
There is actually an article on this on Budget101:
I used to use that system for years when I first started out, it really helps if you have a member of the household who doesn't pay attention to how much they spend because it puts it all out there. Pretty hard to ignore cold hard cash.
I agree, I used this for the business my boyfrend owned so he could see where all the money was going. I haven't used it a home because there was not a need for it. But lately there has been some complaining on not having spending money (there must be something he really wants to buy lol) So I think for the coming month I am going to do this so he can see why there is not any spending money. I have a school check coming up in a month or so (thats what we usually split to spend) so think he's getting impatient and ansey lol
At my house we used this several years back. We have been writing the amounts of the bills down but plan to start this up again in February just to see exactly where all of the money is going and how we can lower the cost of some of the items. There is a huge difference between seeing it wrote on a paper and paying by check then using real cash for the purchases. I know that there will be things that I will not buy when I have to use the actual cash. Seems like when you pay with a check it isn't real money that you are using-even though it is
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