Would the Envelope Method of Budgeting Work for You?

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saving money, savings goal, envelop method, financial planning

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The following post is by MPFJ staff writer, Kelly Gurnett. Kelly runs the blog Cordelia Calls It Quits, where she documents her attempts to rid her life of the things that don’t matter and focus more on the things that do. You can also follow her on Twitter and Facebook.


The dreaded “B” word. Budgeting.



Even the most gung-ho savers among us can loathe it. Because no matter how carefully you crunch the numbers—no matter how iron-clad your budget categories are—reality always seems to run away from you. Your perfect numbers and what you really wind up spending end up miles apart.


It’s not surprising. In today’s easy-swipe world, we hardly think twice about the money we’re spending. Even if you’re careful with the credit cards and only use a debit card linked straight to your checking account, plastic is still plastic—and it never quite registers as concretely as real money does.


Not to mention all those “little” expenses that hardly seem worth tracking, but eventually add up: a 99 cent convenience store coffee here, a $7 fast food lunch there. It’s just so very easy for your spending to get away from you.


If you find yourself nodding your head ruefully at this, then the envelope method of budgeting may be just what you need to get yourself back on track.



What the Envelope Method Is and How It Works

The envelope method of budgeting solves the “where did all my money go???” dilemma by making your monthly allotments undeniably real to you. How? By giving you actual wads of cash to use for the month—and the knowledge that once those bills are gone, they’re gone.


Here’s how it works:

  • Pay your non-cash bills first. We all have monthly bills we don’t pay in cash—mortgage payments, car loans, utility bills. Anything you pay by check or online payment, pay as soon as your paycheck comes in. That way, that money is effectively “gone” and can’t be spent.
  • Make envelopes for all your other budget categories. Even if they’re things you’d normally use a debit card for (like groceries), you are now operating on a cash-only system. So make an envelope for eating out, clothes, miscellaneous purchases (like gifts for those birthdays you always forget are coming that month).  Label each one clearly, along with the amount you have budgeted for that category.
  • Put your allotment into those envelopes. It’s up to you whether you have monthly envelopes or weekly envelopes, although weekly can make things a bit easier for you, because if you have an unfortunate lapse and spend too much, at least you’ve only wiped out the week’s grocery budget and not the entire month’s.
  • Be conscious of how much is in the envelopes as you spend. When you are literally holding the whole week’s entertainment budget in your hands, it can make it a lot easier to decide if you want to blow the whole wad on an IMAX showing of the latest B-movie or if you’d rather spread it out over several Redbox rentals. The ability to physically see how much you have to spend for that period—and how much will be left after you spend it—can be a fantastic way to make you think twice about your purchases.
  • Once your envelope is depleted, you’re done. It doesn’t matter if there are three more days in the week and you’ve blown your grocery budget—time to get creative with leftovers. It doesn’t matter if you really wanted to see that concert at the beginning of the month, but now your monthly entertainment envelope is empty—time to start enjoying all those DVDs you already own but have never gotten around to watching.

It will take a little getting used to, but this is one accountability method that is very tangible, and therefore very hard to evade. Try it yourself for a month or two and see how your spending overages suddenly start disappearing.


Have you ever tried the envelope method?  What did you like or dislike about it?

***Photo courtesy of http://www.flickr.com/photos/kgnixer/7941841432/