Money Matters: Organizing Your Budget with the Envelope System

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source: stopnlook

source: stopnlook

The following guest post is from Julia at The Frugal Find:

This envelope system isn’t new. I’m not the genius who created it – and yes, that person WAS a genius – but I believe this system will transform your financial situation.

Envelope Budget 101

My #1 tip is to use cash only and always. I speak from the experience of having gotten into thousands of dollars in debt. Cash is absolutely the only way to go. I know at first it might sound crazy. You might think, “If I have cash, I will just blow it!” However, I think you will quickly see just the opposite happen. You will begin to ask yourself, “Do we really need this?” You will find yourself using coupons more often and shopping at the discount store you always avoided. When you are on a fixed budget, you will see that you actually DO have the time to clip coupons and hit a couple of different stores in search of a deal or sale. Amazing how this happens!

Step 1

Define your categories. What can you possibly pay for cash with? One key here is to only include categories for things that you can’t pay online or through an invoice or bill. Anything that doesn’t come as a bill in the mail is probably a good candidate for cash.

Here is a list of our envelopes. Notice I do not have an envelope for gas. It’s not that we don’t have it budgeted, but it’s because I don’t want to leave the kids in the car while I go into the gas station to pay the attendant. We use our debit card for this expense. Note DEBIT, not CREDIT. You’ll need to figure out what best fits your families needs.

1. Groceries
2. Toiletries
3. Clothes
4. Gifts (Birthdays, Christmas, etc)
5. Date Night
6. Eating Out
7. Spending Money
8. Car Maintenance
9. Kid’s Date
10. Kid’s Allowance
11. Trip Money

Step 2

Determine how much you spend in each of your categories per month, ie. groceries, toiletries, clothing, etc. Not what you spend while on a budget, but what you have spent on a regular basis. This make take some time, and you may have no idea because you haven’t kept any track at all. You may have to start the tracking process now for the next 30 days. Now hold on to your seat; you’re going to be shocked!

Step 3

Figure out how much you think you will need in each category, but the key here is to be flexible because it will change. It will change more than once, twice, and possibly even three times. Life is always changing, and so will your budget. Another baby? Up goes the toiletry budget! Or maybe you just potty trained your 2-year-old. Well, that saves $30 a month!

Step 4

Get the cash! We go every week on payday to withdraw our cash. It is easiest if you can keep it to an even $20 amount so you can go to the ATM machine at your bank, which saves you a trip inside the bank. This has got to be the best part! It’s like playing a game of monopoly. Divide your cash into your envelopes. Of course, you may need to go into the bank every once in a while to get $5’s, $10’s, et cetera depending on your envelope amounts.

Step 5

Start saving money! When the envelope is empty, that’s it. Your money is gone and you CANNOT purchase anything in that category until the next envelope payday. But remember, the first couple of months you need to be flexible. Also, please remember to make your budget realistic. If you undercut yourself too much, you will give up. This is why my family has an eating out budget. The reality is that while we shouldn’t eat out, we do. We put $15 a week into our eating out budget. If we save it up, we can go out to a sit-down dinner; otherwise it gets us a pizza night once a week.

The envelope system is something that we live by, and it’s the only way we have been able to to live without credit cards for 2 years now. I’d be happy to go into even more details if you’d like. Just contact me!

Have you ever tried the envelope system of budgeting? What other methods have you found for tracking and controlling your spending?

Julia and her husband are climbing their way out of debt and hope to be debt free very soon! They have 4 children, 3 boys and 1 girl and are a homeschooling family trying to live simply yet abundantly. You can find Julia sharing all her frugal tips at The Frugal Find.

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About the Author

Mandi Ehman

Hi. My name is Mandi and I’m an organizing junkie. I’m also a wife, and Momma to four little girls (5, 3.5, 2 and a new baby!). I've worked at home since our oldest was a baby, and like a lot of other moms, my life is a constant balancing act of caring for my family and my home, meeting my obligations and finding time for hobbies in there somewhere. Oh, yeah, in the interest of full disclosure, I’m somewhat of a kitchen dunce and I only like to pretend that I’m crafty. Read more here!

10 Responses to “ Money Matters: Organizing Your Budget with the Envelope System ”

  1. We use the envelope system for all of our food. It works wonders in keeping track and everything in check. Our biggest problem is getting to the bank for the withdrawal. If we can remember that, then we are golden.

    We are considering doing this for our personal $ (ie: for me, clothes money and for hubby, bike budget) too, whenever that’s back in the budget.

    Great tips!

    PS~Erin’s last blog post…Love this Jewelry and she’s giving some away!


  2. Funny. I was just making dh’s list of what cash to get at the bank. We’ve used the envelope system for 2 years now and it has made a world of difference in our budgeting! (We are following Dave Ramsey’s Total Money Makeover/ Financial Peace University and are paying off old credit card debt. We no longer use credit. If we don’t have the money- we don’t buy it. Ever.)

    My suggestion is to keep the envelopes to a minimum initially. If you start with 15 envelopes, it is difficult to accurately budget and takes a lot of initial cash to implement. We started with grocery and our spending (blow) money. After a month or so, we added haircuts, guitar lessons, and water (we haul our own). Now, we have them for clothing, car repair, home repair, and special occasions (fireworks, the county fair, etc…) We keep the envelopes not being used (car repair and such) in our home safe so the money is readily available if we need it but not so available it could be misplaced.

    You simply cannot convince someone how much money they’ll save spending cash, instead of DEBIT (not to mention CREDIT) at the grocery store, until they try it! It is a different mindset than our culture holds but it works and you will save money!!!

    Karen’s last blog post…Happy Birthday Cael!!!


  3. We are an enveloping family here! We’ve gone off and returned, realizing it is simply the best way for us to go. We don’t own and haven’t used credit cards in over 6 years – great feeling!

    Angie @ The Creative Mama’s last blog post…The Two-Piece Suit.


  4. What a reminder! I can remember my Mom doing this back in the day. I won’t say what day that will give away my age! This is so simple, but can I be trusted with all that cash??

    Wendy’s last blog post…Reflections in the Mirror


  5. Full Disclosure: is a great free online resource for users trying to establish their budget and get on track with their personal finances. The envelope system is great but can be great and can be incorporated with our personal budgeting software. Mint and other tools syncs personal account information, we do not, reducing all security threats. Our users manually input transaction or can import financial bank statements allowing them to have a more hands on budgeting experience. If anyone has any questions, please feel free to contact me.

    Craig Kessler
    Marketing Director at BudgetPulse
    [email protected]


  6. Thanks for featuring me Mandi! Karen, you’re SO right about not being able to convince anyone that the envelope system does in fact work, they just have to try it. Same thing goes for “couponing”, I tell people till I’m blue in the face how much money I save, but it isn’tuntil they try it themselves.

    Julia @ The Frugal Find’s last blog post…New $3.00 Huggies Pull Ups Coupon


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  9. This will definately be something I’ll be doing once we are back from vacation!

    Vanessa’s last blog post…Remembering Our Fallen Heroes: Master Cpl. Charles-Philippe Michaud


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