Envelope budgeting system: A commendable approach to budgeting

Budgeting isn’t something that comes easy to most of us. Many budgeting strategies have been in practice yet people still complain of overspending and extravagances. The main reason for the ‘out of the budget’ menace is the lack of accountability to it.

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How to create a workable budget for smooth accountability?

Envelope budgeting system
This is about legitimate planning utilizing the money envelope system. It enables a great deal when we include our children with our finances

How to create a workable budget for smooth accountability?

An envelope budgeting system is an efficient and diligent tactic to minimize overspending and maximize the saving ratio of your personal budget. Let’s see how it processes.

SOPs of Envelope budgeting system


Decide your discretionary Income

Pen down the net amount of all the utilities, household items, groceries, medical, entertainment, clothing, insurances, and all the important stuff. Compare it with your monthly income to see where you stand.


Design a friendly budget

Define different categories for saving and investing the amount left according to the budget.  You can keep as many categories as you want but try to limit to the necessities. Taxes and insurances of health and vehicles are the foremost utilities. You can check the previous bank statements to note the expenditure limit. Find how much amount is left for savings and investments after satisfying all the necessities. Keep 30% for personal expenses, 50% for taxes and utilities, and 20% for savings and investments. This is called the “50/30/20 budget”.

Example: John gets a pay of $500. He divided his pay and allotted a fixed amount of cash in the category as follows:


$200: RENT

$70: GAS




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Now comes the envelope setting

For each category decided, make an envelope and label it with the category name. After getting your monthly salary, assign the budgeted amount in each envelope.


What to do next

You have to wisely use that budgeted cash the whole month. In case, you run out of cash, don’t use the cash of savings or other categories otherwise, you will lose your accountability score. Every time you go out, take these envelopes with you in the wallets and spend from the allotted cash. As a result, you will achieve your saving goal without as much stress.

file budgeting system
Using cash over plastic is one of the easiest ways to manage, and hold onto more of your money.

Benefits of envelope budgeting system

  • Such an intelligent approach to managing finances the shoulder allows you to save a considerable amount of money. That extra amount can be used to pay the hefty debts and unpaid insurances.
  • It is a hundred percent workable and you have the result in your hands by the end of the month. It’s simple and easy to manage and doesn’t require some complex finance calculation to read the desired goal of budgeting. You use a straightforward rule of spending i.e. fix an amount for respective categories and don’t overspend when going broke.
  • It will teach you how to create discipline in every aspect of life starting from budgeting your income and spending habits. You will learn how to compact extravagances and unwanted lavish desires. This discipline will teach you how to remain patient in other parts of life such as relationships.
  • The biggest rescue of all types of emergencies is the presence of urgently required money. The emergencies can be in the form of accidents, injuries, natural disasters, and any unwanted circumstance. The saved amount can be used to instantly overcome the damage.
  • Spending money in cash rather than bank cards will always protect you from the overspending of money. When you have a credit card in your hands that has a significant limit of credit, your mind will trigger you to buy more and more. According to a fact, people using cash spend 10% to 20% less amount of money. Notably, physical cash always has an emotional connection with the owner as they earn it with hard work and dedication that does not allow them to spend it irresponsibly. Avni Shah, professor of the University of Toronto Scarborough, states that spending cash triggers pain in the brain.

“You feel something when you physically part with your money, and there are different levels of pain depending on the type of payment. Something tangible like cash will feel more painful to part with than paying by (check), which will feel more painful than paying by card and so on.’’

  • On-time payment of all the utilities and bills because you will have a physical envelope of each category of spending. You can easily keep the envelope in your pocket and pay on time whereas online electronic payments give the relaxation and prolong the process.

Things to avoid when using the envelope budgeting system

  • Keep your envelopes in a safe place like it as more chances of getting stolen than plastic cards. You can also use an accordion envelope instead of keeping separate envelopes.
  • It might take 3 to 4 months to get used to the envelope method, so don’t give up early.
  • Specify the label of your envelope such as: “play money for theme parks” “trip to Goa”
  • Only take away the envelope out when you need it. Done take the clothing one when going out for clothing.
  • You can update the envelopes on a weekly, bimonthly, or monthly basis. It works best when maintained on paycheck time as you have the idea of your monthly income.

Envelope finance software

Moreover, with the progress in technology, there is multiple spending management software available to help the user in financing their budgets.

These management software are based on the working phenomena of the envelope budgeting system. It allows you to carry out the online financial transactions and spend electronically by working on the principles of envelope budgeting. You enter your income, savings goals, budgets, and all the required categories in the software.

This data is used to perform all financial division and automatically assigns the amount in each category. It gives your warning messages when it comes to going short of cash in the respective category. The biggest advantage of budgeting software is that it doesn’t allow the transaction to carry out if the limit of the cash is exceeded.

Final word

In the era of computerization, traditional and outdated to use paperwork for managing your finances. However, it has more success rate of efficiently managing the budget. It only has one rule i.e. don’t use plastic cards, use cash, and win the game.

Carlos Moreno, a financial specialist of Mobility Mentoring Center quotes, “What either makes or breaks a budget is the variable expenses.… That’s where the envelope system is so effective. It shows you right then and there how much money is going into specific categories”

If you ever have been a user of envelope budgeting, write your experience and review below.  

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