How To Set Up an Envelope Budgeting System

Learn to set up an envelope budgeting system.
••• Les Cunliffe/Photolibrary/Getty Images

One of the easiest ways to track your spending is to switch to an envelope system. This is the budgeting system that people used before checking accounts became common. Most likely, your grandparents used this system or one similar to it. Generally, you will switch the categories that are not bills. This allows you to continue to pay bills from your checking account. However to make the envelope system work for you, you should stop spending stop using your checking account except to pay bills. Learn how to set up an envelope budgeting system.

Decide the Categories You Will Switch to Cash

First, you will need to have your budget with you. Then you will need to determine which categories you are going to switch to the envelope system. This should your budget amounts that involve discretionary spending. Common categories that are used are groceries, eating out, gas money or cab fare, entertainment categories, fun money, clothing, miscellaneous and household expenses.

Withdraw the Cash at the Beginning of the Month

Second, you will need to add up these expenses and make a withdrawal at your bank. Generally, it is best to write a check and request the required denominations you need for each category. The easiest way to do this is to write it down before you go to the bank.

Label an Envelope for Each Category

Third, you will need to label your envelopes and put the correct amount into each envelope. Find a safe place to store your envelopes. Generally you may not want to carry that much cash with you. You may want to carry twenty dollars with you to cover unexpected expenses. When you get home you will take the amount you spent from the correct category.

Take the Envelopes With Your When You Shop

When you go  shopping or to have fun, take money from the same category. You do not want to take the whole amount with you, because you will spend it in one trip. This is especially true for your food and entertainment categories. You can put the receipts in the envelopes so that you can track your spending at the end of the month. This may help you notice spending issues and identify problems areas when it comes to shopping.

Stop Spending Money as You Run Out of It

Stop spending money on that category as soon as you run out of money in the envelope. You can transfer money between categories if you need to. You should not begin to charge your expenses, once you run out of money in the category. You need to discipline yourself to stop spending. This is the key to making any budget work for you.

Roll Left Over Money to the Next Month

If you have money leftover in the categories, you can choose to roll it over into the next month. This may work for some categories like groceries so that you can stock up where there is a good sale or when you are saving up for something more expensive. You may also splurge with extra money or put it toward one of your financial goals


Try Dividing Some Categories Into Weekly Amounts

You can create sub-envelopes for weekly expenses so you do not spend all of your money at the beginning of the month. This works especially well for categories like your groceries. This way you know you will have some money at the end of the month so you are not just eating ramen.

Use the Benefit of Counting Change to Curb Spending

There are benefits to spending cash. People tend to spend less when they must count out the cash when shopping. They tend to overspend if they know they are putting it on a credit card. You may find that your spending goes down when you are using this method. 

Use Shopping Lists to Curb Overspending

Shop with a specific list and estimate your costs before you go into the store. You can use the calculator on your phone to track what you have spent. This can help you stick your budget even more, especially on big shopping trips like the grocery store or when you visit a warehouse store to stock up on supplies. You can estimate the costs of the items on the list before you go to the store to help you stay on track. 

Consider Using a Billfold or Coupon System for Your Cash

If you do not want to carry around envelopes, you can use a divided billfold, or coupon system. You can find them in office supply stores. Another option is to look at the options offered by Dave Ramsey or on Etsy stores. There are cute options that are bit more durable than envelopes. 

Leave Your Debit and Credit Cards at Home

If you know you will be tempted to dip into your checking account when you are shopping, leave your cards at home. This will force you to pay more attention to your spending when you are at the store. You can use the calculator on your phone to track your total before you get to the checkout.