Would the Envelope Method of Budgeting Work for You?

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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/


  1. John S @ Frugal Rules says:

    We use the envelope system and have for years. We love it. I think there's a psychological link to spending money and parting with cash that makes it easier to stay disciplined. It took us a while to get it down, but once we did, we stuck with it.

    • CordeliaCallsIt says:

      I believe there definitely is a link. Swiping a card is so detached, but physically handing over dollar bills really makes you realize what it is that you're spending. Plus, having a visible amount to spend makes it impossible to go over that amount. There's no “Oh, I forgot and went over budget!” When the envelope is empty, it's empty, end of story.
      My recent post QUIT: Dying on the Treadmill

  2. Thomas S. Moore says:

    Think this is a great system if used properly. Setting amounts and sticking to them would be key and not changing how much you need to eat out every month so you have more. The key to any budget working is being realistic and sticking to it. Adjust accordingly and though I have never used envelopes I have done this with cash. I only take out what I plan to use for the weekends.
    My recent post Sneaker Fridays Part Three – Reebok Pumps

    • CordeliaCallsIt says:

      “The key to any budget is being realistic and sticking to it.”

      Exactly! Having physical cash in hand (as you do yourself) makes it so much more concrete and much harder to spend outside what you've allowed yourself.
      My recent post QUIT: Dying on the Treadmill

  3. Its a very cool concept but I don't believe it would work for me. I am frugal with my money but even more so with my time so I cant see me carrying around envelopes or reconciling how much cam out of each each day and making change.

    I much prefer setting a budget in Mint and then getting weekly emails telling me how I am doing in each “envelope” and there is no tracking burden…maybe I am missing the point and the fact that you have to track means you will pay more attention.
    My recent post Who Needs Student Loans?

  4. Canadianbudgetbinder says:

    I wonder if this world never had credit cards and debit cards if we would be in the state that we are in. The envelope system for us would work but it would bug us to no end. If we had to use it then we would as some people don't know when to stop spending or they continually make excuses… “oh I'll work overtime”, “I'm getting a raise or bonus' bla bla. If someone can't get a grip on their finances and debt, take the envelope route, probably why some professionals suggest it. When the moneys gone, it's gone.. it doesn't get any more basic than that. Cheers Mr.CBB
    My recent post Make The Most Out Of Black Friday Deals Without Crossing the Border

    • CordeliaCallsIt says:

      It is SO easy to talk yourself into going over budget. Whenever we used to contemplate going over in one area, we'd say “Don't worry–we'll make it up by cutting back on X.” But then you get into the swing of your normal routine and complete forget about that resolution–or some unforeseen expense comes up that brings your spending in X right back up to where it would have been anyway.

      It's always better to just proactively stay within budget than to reactively wonder how you're going to make up for going over budget. 🙂

  5. I don't think this method would work for me, as well as for most other people. The simple reason is that one simply needs motivation to save money and budget, and one can do it quite easily if one has the willpower to do so.

  6. I have been using this system since 1997. I started when I made very little money – like $12K a year and it helped me control my spending and manage debt. I make way more $ now but I still use cash for my spending money. My DI (disposable income) is strictly cash and seeing those $20 bills disappear makes it so much easier to be disciplined. People at work are shocked that I only go to the bank machine twice a month on payday to withdraw my ‘allowance.’ Of course they have no money and I have lots.

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