Envelope Method of Budgeting: The Cash Envelope System Explained

Have you ever wondered about the envelope method of budgeting and how it works? The envelope system is something developed by Dave Ramsey. While he may not have invented it, he sure did polish the system. In fact, my best friend had been using this method of budgeting long before Dave Ramsey was a household name.

The envelope system is a great way to take charge of your finances. It's work for our family, and several others that we know. Here is a guide to understanding the envelope system and making it work for you.

How to Set Up an Envelope

The cool thing about the envelope system is you don’t need to set up or use fancy envelopes. You can go to the Dollar Tree and buy a box of envelopes and use these. Keep in mind that you can go as fancy or not fancy in the envelope department.

Envelope System Categories

Write down the different categories you are using. Before you write on the envelopes and fill them with money, it’s best to be organized. Grab a piece of paper and write down the different categories you are using. Some categories might include groceries, gas, fun, and so on.

Free Budget Template

Household Budget Template

Come up with an amount for each budget. The idea isn’t to starve your family or never have any fun, the idea is just to make sure you budget for it all. For example, you may come up with $150 a week for groceries. Don’t budget for only $75, if you spend $150. Get it? You would need to come up with an amount for each envelope.

Envelope Method of Budgeting

Write the category on the outside of the envelope. Now comes the fun part. You simply write the word “groceries” or “family fun” on the outside of the envelope. Some people like to write the budgeted dollar amount on the outside of the envelope, but you can write it on the flap of the inside for a little more privacy.

Budgeting Tips

Don’t add more money to the envelope. Once your money is gone from the envelope, you can’t add more to it. Remember that. It’s so tempting to try and pull from another envelope, but don’t. The only way the envelope system works is if you do it right. Remember, only buy with the money that’s in that envelope.

Cash Flow Budget

Enjoy putting your money to work for you. Money makes the world go round, which is why it’s so important to put it to work for you! The envelope system allows you to do just that. Sometimes people spend their money before they can even budget it. The envelope system allows you to be more responsible with your money.

Are you using the envelope system? How is it going for you?

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