The envelope system isn’t anything new. If you haven’t heard of it, don’t worry – it’s pretty simple. Basically, you take each budget category and make an envelope for it. And inside each envelope, you put the amount of money you have budgeted for that category.
Once the money is gone – that’s it. You’re done spending. (For a more detailed version, Dave Ramsey does a great job of explaining it here and Money Crashers did an article about it here, too.)
It’s a great tool to keep you on budget because it’s a visual representation of where you’re at in your budget. Seeing the cash that’s in the envelope (or not in the envelope!) helps you to take pause and really think about the money you’re spending each month.
But even with how amazing the envelope system is for budgeting, it won’t work unless you’re using it the right way. Going over budget and borrowing from one envelope for another… that’s a recipe for disaster.
The most important piece of using the envelope system is to start with a budget. Once you (and your spouse) have agreed on a final budget, you can divvy up your cash into the separate envelopes and get started. A budget is the glue that holds your envelope system together – without it, your best-laid plans will fall apart.
Once your cash is separated into your envelopes, you can only spend what’s in there. If you get to the grocery store and forgot your envelope? You’ll have to turn around, go back home and get it. Sound drastic? It’s supposed to.
I know it’s tough… I’m living this journey right along with you. But sticking to your budget is the only way you’ll reach your financial goals. And that means there’s no envelope switching.
The only way to win with your envelope system is to only spend what you have allotted to each category. Taking money out of your gas envelope to spring for pizza on a busy night is going against your budget plan. It’ll put your further from your financial goals and cause you stress over wondering if you’ll have gas to get to work at the end of the month. (And that’s not a fun thing to worry about!)
Using the envelope system is a great way to stick to your money plan for the month. It helps both partners see where you are in the budget at a glance, which helps to keep you both on track. And that’s how you win with your financial future.
Have you used the envelope system? Have you had success? Or does it not really work for you?