Envelope Budget
Are you finding it hard to stick to a budget? An easier way to stay within a budget is to use the envelope budget. When you get paid, you divide all of your money into envelopes. Each envelope represents a different expense category in your budget.
By dividing your cash into envelopes, you immediately know what you have on hand to pay bills, make purchases, and contribute to your savings. The envelope budget may be old-fashioned, but it is still highly effective at helping people stick to a budget. You can't spend what you don't have!
Steps to set up your envelope budget
1. Write down all your expenses. Don't forget annual expenses such as property taxes vacation money and money for the holidays.
2. Label one envelope for each expense category. You will have an envelope for your car payment, house payment, groceries, utilities, gas, insurance, credit card bills, savings, personal care, entertainment, and all your other expense categories.
3. On the outside of each envelope write the budgeted amount for that month and the day it is due. (example; house payment 10th $790)
4. Use your envelopes for the purposes you have defined and nothing else. When the money is gone, stop spending.
Calculating Your Expenses
Calculating your expenses varies by how you are paid each month.
For weekly paychecks - Multiply your monthly expenses by 12 and then divide by 52. For annual expenses divide by 52.
For bi-weekly paychecks - Multiply your monthly expenses by 12 and then divide by 26. For annual expenses divide by 26.
For semi-monthly paychecks - Divide your monthly expenses by 2. For annual expenses divide by 24.
Monthly paycheck - Divide annual expenses by 12.
When calculating the amounts to put in each envelope always round up to the nearest dollar so you don't have to worry about change.
How does using the envelope budget help you?
- It will keep you from overspending.
- Help you keep track of your money every month.
- Provides a solid foundation for managing your money.
- It will help you eliminate your debt.
- Helps you save money.
Using the envelope budget does require discipline but it will keep you from over spending and help you become more organized. This is great for someone who has trouble staying in budget on paper and needs the visual aid the envelopes provide.
The envelope budget allows you to see and touch every dollar you spend which may help you spend less! It's a lot harder to let go of cash verses checks, debit cards and credit cards.
