How to Get a Handle on Your Budget Using the Envelope System


Do you have difficulty staying within your financial budget each month? Does it seem as though, no matter how many raises or yearly bonuses come your way, you still manage to spend more money than you earn?

Many people measure their wealth by how much income they can generate. A better, more effective way to measure your wealth is by how much money you can keep each month.

The safe way to double your money is to fold it over once and put it in your pocket.” ~Frank Hubbard

A good way to end up with money left over each month is to allot funds from each paycheck you receive to each financial responsibility that you have, preventing you from spending money frivolously on things you don’t need. Working from a detailed budget each month will allow you to see all of your “Money In” and “Money Out,” leaving you much less room for error.

Your first step is to set up a basic budget that works for your lifestyle and your income. Begin setting up your budget with how much money you bring home every month. You’re going to want to make a written chart or typed spreadsheet that will include all of your expenses and extras – basically everything you “owe” each month. Once you have a basic budget created, you will know how much money you need to allot to each expense every month or every paycheck, depending on how often you get paid.

Now you need to figure out how to make sure you have enough money each month to fulfill all of your obligations that you have just acknowledged in the monthly budget that you’ve created.

The old-school cash and envelopes system used to be pretty popular when most people were still using cash to pay for most things. The envelope system entailed making enough paper envelopes for every line item in your budget – ranging from rent/mortgage payments to entertainment funds and pet expenses.

With each paycheck, you would simply fill each envelope with the money for each monthly obligation. When the bill came due, you would take that amount out of the envelope in order to make a payment.

Luckily, this system can also be copied electronically in many modern banks. Because online banking is so popular and simple today, it’s preferable to most people to create an e-version of the envelope system. Find a bank that will allow you to set up a checking account where your paychecks can be deposited electronically. Next, look for a bank that gives you the ability to open unlimited (or at least enough to cover all of your different budget categories) savings accounts so that you can deposit portions of each paycheck into each monthly bill category.

Then, either manually or electronically (if your bank supports it), you can transfer the necessary funds for, say, your mortgage payment, when it comes due, right out of the mortgage savings account and into your checking account, and – VOILA! Pay the bill with the allotted funds!

Do you have interesting tips to share regarding budgeting and keeping on track financially? If so, we’d love to hear from you in the comments! If you’re interested in more ways to improve your finances, give Veitengruber Law a call so we can sit down with you to come up with a plan to raise your credit score.

Image credit: C x 2

7 Responses to How to Get a Handle on Your Budget Using the Envelope System

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