How To Use Envelope System For Budgeting Plan Essay

HOW THE ENVELOPE SYSTEM WORKS

Track your expenses for at least a few weeks to get a feel for how you’re currently spending your money. This is outside of course your ‘regular’ bills such as mortgages, car payments, credit card payments, and utilities.

Target any big areas of fluctuation such as grocery bills, clothing expenses, entertainment and break them all down.

These are areas where people usually end up overspending and where you can cut costs.

The envelope system can help you look at your spending habits and not fix them per se but adjust them to where they can become more manageable.

Now, get some real honest-to-goodness envelopes and set up some categories.

Maybe your envelopes will say ‘entertainment’ on one, ‘grocery bills’ on another, ‘clothing’ on yet another, ‘going out to eat’ on another.

You can make up as many envelopes as you want.

Now put some real cash in those envelopes! Based on what you have been spending but perhaps more importantly what you know you SHOULD be spending or want to spend in those areas, put that much cash in each of the envelopes….maybe $100 for dining out, maybe $50 for entertainment, maybe $100 for clothes and gosh knows how many dollars for groceries.

You’ll need to determine if that money is going to last you a week or 2 weeks. If you get really good at it, monthly expenditures are great for the envelope system. Starting out though, you’ll need to think in terms of shorter time frames until you get the hang of it. Baby steps and all that!

Now spend! Yes, I said spend……not hoard. This is the way that you’ll learn how to budget your money.

This is a very visual way of seeing how to discipline yourself when it comes to money and spending habits.

ZERO MEANS ZERO

Zero means exactly that – zero. If you go out to eat twice in 1 week and you spend the $100 cash you have in the envelope, that means you can’t do that anymore until you get paid and add more money to the envelope. No ifs, ands or buts about it…..you’re done going out!

Same goes with the clothes envelope. If you spend your cash down to zero for that envelope, you don’t have anything else to buy with so you’ll just have to wait for a refill of the envelope next payday.

USING THE ENVELOPE BUDGETING PLAN WITHOUT CASH

What if you don’t like cash spending? Well, you could still write the number of dollars on the envelope and then use your debit card to spend that much money…..but ONLY that amount of money…..period….and no fudging!

LEFTOVER MONEY IN THE ENVELOPE SYSTEM

What if you have money left over in the envelope at the end of the week or 2-week period? Good for you!

You have several choices then….you can keep the money in the envelope because you earmarked it for that.

You can also put it back into savings because you did good! You saved money rather than spent it!

Or you can roll it into another envelope where you project you might be able to use a little extra cash.

ZERO-BASED MONEY MANAGEMENT

I think this is an excellent way to teach kids to budget as well.

You can do the same on paper or on the computer but somehow feeling the money, seeing the actual amount that you put into the envelope for a certain aspect of your spending life and then staying inside those lines makes you more dedicated to learning appropriate spending habits.

One of the major reasons that people get into debt is spending beyond their means.

By employing a zero-based money management system, you can’t possibly overspend because once it’s gone, it’s gone!

Of course, employing other frugal spending methods in the background also helps you save money and keeps you from going into debt.

The envelope system can work for trimming a budget that has a few flaws in it and give you a great amount of satisfaction in the process.