How To Use The Envelope Budgeting System

By Bob Lotich

If you're struggling with creating and maintaining a budget, you've come to the right place. It's not always easy to create a workable budget in this electronic age - swiping the credit card has become all too easy. Wouldn't you say?

Sometimes we simply need to get back to the basics of personal finance. The basics tend to go overlooked. What are they? No credit cards. No worrying about how much money we can actually spend. No electronic mess!

The envelope budgeting system is a great solution for those who are looking to take control of their finances. Here's how it works:

1. Determine a reasonable amount of spending money for the month. You can do this by looking at previous bank statements. What did you spend on average over the past 3 to 6 months? Use this figure for starting your money envelopes.
2. Put it all together. Use a budgeting worksheet to figure out how much to put in each envelope. Gather up your cash and separate it by category into the appropriate envelope. Write on the envelope the name of the category and the amount allocated for the month.
3. Spend only what you have in the envelopes. Many times you'll be tempted to move money between envelopes; avoid this if possible. When you reach the end of the cash, stop spending!

The envelope budgeting system is a great tool in your financial toolbox to get you on the road to financial freedom. But why? Can it really work better than cash back credit cards? Here are a few things to consider:

• Credit cards are easier to use when trying to justify a purchase. When you're standing in front of that new piece of clothing or electronic gadget, it's easier to pick it up off the shelf when you can "pay for it later." If you're holding an envelope with a few bucks in it, it's more difficult to imagine handing over the cash. If you determined how much money to spend using your budgeting worksheet, you won't spend more than you needed to.
• You'll automatically be saving money. At the end of the month, you'll have a few extra bucks (usually in change) scattered amongst your envelopes. Think of it as a bonus! The amount you'll save can be rolled over to next month's envelopes or simply put to whatever financial goals you have - saving, investing, or giving.

So there you have it! The envelope budgeting system is a great way to save money, keep yourself from overspending, and... get a few strange looks from retail store cashiers. But it's well worth it!
Bob writes about getting out of debt, saving and making money, and other personal finance topics at ChristianPF.com. Stop by and download some Free Budgeting Worksheets and learn how to create your envelope budgeting system today!

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