Does the Envelope Budget System Work?

Written By Mary Beth Eastman
Last updated January 29, 2018

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Personal Finance
January 29, 2018

Simple. Thrifty. Living.

The envelope budget system has been around for some time now, and many people still sing its praises. Users credit the system for helping them stay within their means while reducing their debt. While the system has many positives, you must fully dedicate yourself to it to get the results you desire.

When you use this system, you are committing to using cash to pay your bills. First, you determine your budget for both necessities like food and utilities and for discretionary expenses like eating out or going to the movies. Once you’ve determined your budget, you prepare an envelope for each financial category. Some people choose an accordion folder for this purpose.

On every payday, you need to get cash and put it into your envelopes. If you are paid once every two weeks, you will need to put in half your gas money, food money and so on for each check. If you are paid each week, you need to put in one-fourth of your monthly expenses with each check. Then, you only use the cash in the designated envelope to pay for your expenses. When you go to the grocery store, you should take only the amount you need and, when you’re finished shopping, return the change to the envelope. In this way, you are forced to keep track of exactly how much you are spending. When the envelope is empty, you must wait until the next month to spend again in that category.

Some consumers find that putting away their debit and cards is difficult, but the change is necessary. You are more likely to go over budget if you use these cards, and you won’t be able to keep your purchases separate. If you go to a big box store, you may buy clothing, auto supplies and groceries there, requiring you to divide the bill.

If you have an emergency expense such as a car repair, you have to decide whether or not to borrow from other envelopes to cover it. Are you willing to take the bus to work for several weeks to avoid busting your monthly budget? You may decide to allow some room in the budget for emergencies and keep a separate envelope for them.

The envelope system helps you budget because everything is tangible. You have x amount of dollars for clothing each month. When that’s gone, you have to wait until next month to buy that sweater. You have more control and can actually see your money being depleted. For many consumers, the system provides concrete financial benefits.

About the Author

Mary Beth Eastman

Mary Beth Eastman serves as the content manager for Simple. Thrifty. Living, where she is dedicated to helping readers use money and credit wisely. Mary Beth believes that access to the right financial information paired with a growth mindset are essential tools for getting out of debt and building wealth. Mary Beth has a degree in Journalism from Bowling Green State University and has focused her 20-year journalism career on putting readers front and center, carefully considering their concerns and presenting information that will help them in their everyday lives. She has won numerous statewide journalism awards. Her writing on personal finance as been featured on numerous websites in addition to Simple. Thrifty. Living, including Huffington Post and Lexington Law blog. Mary Beth resides in Pittsburgh, Pa., with her family and two rescue dogs.

  • I don’t see any other way that is so effective for gaining control over one’s finances. Absolutely there is an enormous benefit to limiting yourself, avoiding impulse spending, etc, but I think the biggest impact is visually seeing the bills, handling them to disperse for each expense, counting out amounts …… somehow that really hits home in a way we can relate to. This realistic aspect is something which credit cards cannot offer, as they instead blur the distinction between daily expenses/costs and some distant bills arriving in the future.

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