Easy Envelope Budgeting for Beginners

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In this day and age, everyone is talking about budgets. I hear the chatter everywhere I go, “Do you have one”, “I’m going to start one”, “what’s the best one”, “I can never follow one” and on and on. What I’ve found is that people genuinely want to find a budget that works for them and their family and stick with it. That’s what this easy envelope budgeting for beginners actually does! Sounds pretty easy, right?

easy-envelope-budgeting-for-beginnersEasy Envelope Budgeting for Beginners

This first-time beginner’s budget system was passed onto me by my mother, shortly after I moved out on my own more than twenty years ago. She called it the “Envelope System”. Whether or not it has an official name, I couldn’t tell you. The system is fantastic when you can’t afford one of those expensive accounting ledgers or an accountant or financial planner to walk you through the baby steps of getting it all together.

How to Start Envelope Budgeting

Start by taking a clean sheet of paper and dividing it into 3 equal columns. At the top of each column, write the following:

  • Monthly Expenses
  • Yearly Expenses
  • Income Sources- This amount is your total monthly income from all sources. Write each source down, add them up and then divide them by 4.

Next, under each column list all the expenses that you have. For instance, It may look something like this:

Monthly Expenses ÷ 4
Yearly Expenses ÷ 52 weeks
Monthly Income Total
Rent $400 ÷ 4 = $100. week
Phone $60 ÷ 4 = $15. week
Utilities $100 ÷4 = $25. week
Groceries $200 ÷ 4 =$50 wk
Renters Ins. $350÷ 52 = $6.75 week
Car Ins. $1200 ÷ 52 = $24. week
My Paycheck for the Month = $1200.
Take your monthly income and divide by 4.
This is how much you have to put towards each week’s bills.
Total per week: $190. Total Weekly Amount $30.75 Weekly Amount $300.

Once you have completed your list of expenses and income, add your Total Weekly amounts together, in this sample the total weekly expense amount would be $220.75.

The total income for 1 week is $300, thereby creating a surplus of $79.25 which can be used to pay back debts, or savings accounts, IRA’s etc. Be sure to pay yourself an “allowance” each week. Sometimes it’s as little as $10 but this necessary expense helps reward your work and keep you on track.

How to Track Expenses

Take an Envelope for each Expense and write the name of the expense across it, along with the weekly dollar amount needed to pay that particular bill. For instance, in this case, you would have 6 envelopes labeled Rent $100 week, Phone $15 weekly, Utilities $25 weekly, Renter’s Insurance, Car insurance, etc.

At the end of each week, cash your paycheck and “Pay” each envelope the amount needed to pay the bill. If your bill comes in slightly less one month, leave that dollar amount as a cushion for another month. On another note, if you suddenly discover that your monthly income is less than your expenses, it’s time to take a look at your expenditures, nipping and tucking where necessary.

If you have struggled in the past, paid your bills with credit cards, only to sink further into debt, then this basic budget plan is a step in the right direction. Oftentimes people can manage a monthly budget until a yearly expense creeps upon them, such as property taxes or Homeowners insurance, only to send them in a whirlwind, robbing Peter to pay Paul.

This method of budgeting helps prevent panic.

©1998 Melissa ‘Liss’ Burnell – Creator & Designer of Budget101.com, “Digging yourself out of debt when all you have is a spoon”

© Can Stock Photo Inc. / lobzik

About Liss 4017 Articles
Melissa Burnell, known to her friends and fans as "Liss," grew up in Southern Maine, now residing in sunny South Carolina. As a busy Wife, Mother of two sons, an avid photographer, and self-employed entrepreneur, Liss understands the value of both time and money.

22 Comments

  1. your mother was very smart. i’ve been telling my kids this since they were young but i never thought to spell it out this way. thanks!

  2. liss, where can i get a copy of the book “digging yourself out of debt when all you have is a spoon”? this is exactly where we are. and the envelope system is exactly what i plan to do.

    i just hadn’t heard how to do it right.

    now i know. thanks

  3. how do you adapt the envelope system when you rarely handle cash?

    my husband’s paycheck is direct-deposited, all our bills are auto-deducted, i transfer money from account to account via my bank’s website…even when we go out for a latte, it’s done with a debit card. i don’t think we have a checkbook, even, and the last time i handled cash was when my six year old lost a tooth.

    • How do you adapt the envelope system when you rarely handle cash?

      My husband’s paycheck is direct-deposited, all our bills are auto-deducted, I transfer money from account to account via my bank’s website…even when we go out for a latte, it’s done with a debit card. I don’t think we have a checkbook, even, and the last time I handled cash was when my six year old lost a tooth.

      :mornincoffee: My husband is the same way.

      • :mornincoffee: My husband is the same way.

        if you pay yourself weekly -withdraw cash weekly $10-$20- you wont have to use your debit card to pay for your latte, also withdraw the cash to pay for your groceries.. at the end of the month any extra money left in the checking account can be moved to your savings account. or applied to a bill

      • :mornincoffee: My husband is the same way.

        Hey my hubby also gets direct deposit, we just have a certsin amounttaken out each week and sent to the proper places. Like $70 for car a week, 20$ per week for electric n stuff 50$ week .

  4. i have just started the envelope system. it takes some getting use to and takes a couple of trials to get the categories you need.

  5. our family started budgeting about three months ago now, but i like this approach as i have it on a spreadsheet, always having to go in and change amounts in the accounts. i think this approach will help me greatly.

  6. Learn to use Microsoft Excel if you have it, it scares a lot of people, but once you learn it you’ll appreciate what it can do for budgeting. My spreadsheet allows me to enter incoming (paychecks) and outgoing expenses. It is just like the envelope system (this is where I cut my budgeting teeth when I started) I know how much each paycheck I need to transfer out of checking and into savings for those bills that are due every few months.

    When the bigger bills are due, I transfer the funds back to checking and write a check.

    How do you adapt the envelope system when you rarely handle cash?

    My husband’s paycheck is direct-deposited, all our bills are auto-deducted, I transfer money from account to account via my bank’s website…even when we go out for a latte, it’s done with a debit card. I don’t think we have a checkbook, even, and the last time I handled cash was when my six year old lost a tooth.

    Determine what your spend is per pay period. Not your wants, your needs. Big difference.

    Withdraw that much each pay period, throw in another 10 or 20 dollars for discretionary “wants”.

    That’s still spending about $1200 a year on short term happiness. Using a debit card makes it too easy to keep swiping. A latte, is that a want or a need?

    The thrill of that latte is gone once you’ve taken your last sip.

    But you’ve spent the money. Your wants are what what kill a budget. This is what you have to control.

    When you travel with cash in your pocket, you’re less likely to spend it because you know you only have XX days until you have more cash.

    Four years ago I lost my husband, our income was cut in half. I had to figure out how to keep us going. Two years later, he passed away, so I was once again financially cut in half because social security will only pay for one of now.

    It’s only when crunch time comes that you truly cut your expenses to the bone.

    I’m doing ok, but only because I recognize the difference between needs and wants. Only when you truly track your spending will you be able to control it. To me, it’s fun.

  7. The envelope system works! 11 years ago, due to medical problems, we had non-mortgage/non-car debt that was 200% of our annual income. We consulted a couple of finance managers who said our only option was bankruptcy.

    By using a combination of the envelope system where we spent budgeted amounts of cash for things like groceries, clothing, school supplies, property tax, car repairs, home repairs, appliance repair/replacement and camping (vacation and entertainment) and a debt avalanche method, we managed to pay all that off in 6 years. Giving us time to do things like save for college.

    During that 6 years, my husband lost his job of more than 20 years and found another one that paid half what he made. We adjusted and kept moving forward. When we knew that we would need a new roof for the house, we adjusted and put more into savings (using it as a virtual envelope) to pay cash for the new roof.

    Right now, I have lost my job of almost 10 years and am job hunting. We had gotten lazy about using cash and as soon as I lost my job, we went back to a 100% cash system.

    Our oldest is a sophomore in college and will be moving into an off campus apartment. I have helped her develop a budget and set her up with an envelope system.

    It works. It’s not always easy, we still have medical expenses almost equal to our mortgage but we make it work.

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