Making a budget on paper is a good start, but for some people, it’s tough to put the paper budget into pratice.  You have to keep running totals of what you’ve spent in each of your budget categories and frequently compare it to what you’ve budgeted.  What good is a budget if the process is too cumbersome to keep up with?  Envelope budgeting might help you.

How Envelope Budgeting Works

Start by writing out your budget on paper.  Decide your spending categories (e.g. food, rent/mortgage, utilities, etc.) and how much you will spend in each category each pay period.

Then, make an envelope for each spending category.  On the outside of the envelope, write the name of the category.

Each pay period, divide your money for each spending category based on your budget and place the money inside the corresponding envelope.  When you’re ready to spend, take the money from the appropriate envelope.

Envelope Budgeting With Checking Accounts

Envelope budgeting works best with cash since the physical absence of money from an envelope will keep you from spending it.  However, the world of direct deposit and debit cards, managing your money this way can be difficult.  Here’s some suggestions.

  • Don’t deposit your checks (or withdraw your direct deposits) so you can manage with cash.  Then, if you prefer to pay certain bills with check, deposit the money before paying the bill.
  • Open multiple checking accounts.  If you have several spending categories, I don’t suggest opening a checking account for each one.  On the other hand, you might open a second checking account to separate bills and other necessary expenses from spending money.
  • Use an envelope budgeting software to help categorize and manage your spending.

Tips to Make It Work

  • Stick with it.  It might take a few months to get the system to work for you, so don’t give up too soon.
  • Get the family involved.  Make sure to include your spouse and children.  Even if your kids are too young to spend, you can explain why you’re diving the money and spending from envelopes.
  • Don’t throw away leftovers.  If you have money left in an envelope, put it toward savings.