Envelope budgeting is a simple, easy-to-follow system that can help you manage your money more sensibly. By following its rules strictly, you’ll never be out of money, and you’ll never overspend.

The idea of envelope budgeting began years ago, when almost all transactions were done in cash. The way it works is simple - you set aside separate envelopes for each of your monthly expense categories: groceries, gasoline, utility bills, entertainment, etc.

Then, you determine how much you can spend on each of those things - taking into account how much income you’ll actually be getting, of course - and write the amount on the front side of the envelope.

When you get paid, you cash your check and distribute the money into the appropriate envelopes. You do all your spending out of the envelopes, and when the money is gone from a particular envelope, that’s it. You can choose to either borrow from another category, or you can just not spend anymore on that particular thing until the next month.

Bottom line, once all the cash in the envelopes is gone, you’re done until the next payday. This process provides you with a greater awareness of how much money you have on hand and also what you spending your money on.

Today, the envelope budgeting system is a little more complicated because so many of our transactions are done electronically, with online banking and debit cards. Still, the principles remain.

If you can’t actually put cash in the envelopes, you can at least write the amount on the outside. Whenever you spend something in that category, deduct it from the amount and keep a running total. When the envelope is “empty” - i.e., when you’ve spent all you allotted - you’re done.

Now, envelope budgeting won’t work if you cheat on it. If you want to go to the movies but you’ve already spent all your “Entertainment” money, it’s not fair going to the ATM and getting more money out.

You can take some money from one of your other envelopes, and that’s perfectly acceptable. But you must do it with the understanding that this means you’ll have less to spend in that other category for the remainder of the month.

The point is that by following this system, you never spend more than you make. You know up front how much money you’ll be getting this month, and you know exactly where it’s all going to be spent.

If you manage to spend less than you planned - that is, if there’s money left over in the envelopes - that money should go into a savings account or toward a debt you’re trying to pay off.

After a few months on the envelope budgeting system, you’ll be an old pro at managing your finances wisely and more sensibly.

» Envelope Budgeting System - An Age-Old Secret Of Wealth
The envelope system is a time tested process for managing money more effectively. Try it for 30 days and see how much more aware you become of how your money is being spent.

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