Finding ways to budget your money takes a lot of work. We need to find the best method that works for us, and one method you can consider is the envelope budgeting method.
Last year we used the Google sheet way of tracking our expenses. I created a Google sheet tracker attached to a Google Form that we can fill out with whatever expenses we have for a given day.
I still want to continue tracking my expenses with this, but I want to combine it with the envelope method this year.
I realize that the thing with the online way is that money seems to disappear online as well. I’m not sure if you get this, but it seems to be gone virtually. It’s more of you not seeing the money, so thinking that you have the money in the bank, you go ahead and pay with your card, and then the overspending happens.
Anyway, that’s the reason why I want to try the envelope method this year. But I will combine it with online tracking, and I also love writing it down on paper sometimes for it to sink in.
Yes, budgeting and saving are not easy. We have to be aware of our income and expenses. We have to think hard before buying things we see in online shops and physical stores, and I am personally having a hard time, especially when I’m stressed. I love browsing online stores.
If you’re like me, let’s go ahead and discuss this envelope method, and I’ll also be sharing how I will combine this with other methods.
What is the Envelope Method of Budgeting?
The envelope method of budgeting is a way of tracking your expenses by using envelopes where you will put your allotted amount for different expenses you have every month.
This works better on a monthly type of budgeting, but if you want to use it on a weekly or biweekly, then you can adjust it based on your preference or salary frequency.
In this example, I’ll use the monthly budget because I also receive my salary on a monthly schedule.
How to use the cash envelope system?
So how does this envelope method works? I’ll discuss how I did it step by step and give you a quick tip after this.
1. List your expenses.
You have to know your expenses first. Think about the normal expenses you have monthly. Find a paper to write them down so you’ll know how many envelopes you should have.
Complete your list and make sure you covered everything, and put the amount you normally spend for each item. Writing it down on paper will make you see the necessary expenses and the things you can eliminate (because they’re not necessities).
You can also add an envelope for Miscellaneous Expenses if you have many of these small things you buy occasionally. I buy stuff like plastic flowers or a mouse for my computer sometimes. So it’s good to have a budget for these.
You can put the approximate amount for each item if you’re unsure or if they do not have a fixed amount. For example us, we have expenses for groceries and for our market expenses that are not fixed. So I tried to just put an approximate amount for this, like P1, 500.00 per week, so that’s P6,000.00 monthly for the market expenses.
2. Get some envelopes.
Now that you have your list. It’s time to get an envelope for each of the expenses.
I suggest you create an envelope if you have time. You can use scrap papers you might have and make envelopes of the same sizes.
I think recycling papers you have around you can also help inspire you to get on with this method. Plus, you get to help the environment by reducing waste.
Another advantage of creating your envelope is that you can control the size or how you want it to look. You can even print a design you want on your regular printer. So you can be very creative with this to help inspire you to budget using this method.
If you’re not creative and don’t have time to make your envelope, head to a store and buy one.
Another suggestion is to find all those small pouches given to you as a gift or souvenir. I normally get these small pouches as a souvenir from a friend or a family member who went out of town, and I never really used them, so now I can use them for my budgeting method.
Using a pouch is good because if you have coins, you can always drop them inside. Unlike using an envelope, when you get a lot of coins, the paper envelope can get ripped because it’s too heavy.
3. Label your envelope.
Now that we’ve listed all the expenses and their corresponding amount.
You can now label it with the expense item example, Groceries, Rent, Electricity etc.
You can be creative in creating labels, or you can write them down on each envelope. Write it in the upper section so you can easily read it when all your envelopes are stacked in your drawer.
Label it like how they usually do with traditional office files.
4. Put money in your envelopes.
Now, your envelopes are ready and just waiting for your salary!
Every month or every time you get your salary, just put the amount you indicated in your list for each corresponding envelope. If you need to go out to the market, you can find the envelope for your market expenses and get the amount you need.
If you have any amount left, put it back in the corresponding envelope to be added on your next market day.
Now, if the amount you left there is not enough most of the time, you must adjust your budget the following month until you get the correct amount that should be set aside for that particular expense. You might also need to review your spending to make sure you’re not buying unnecessary items using that budget.
Pros and Cons of the Envelope System
Pros
1. The envelope method can help you control your expenses.
Wondering how?
Because you only have that amount inside your envelope, you can’t just go ahead and keep buying. You know you have to control your expenses and work around that amount only.
2. This method can help you see how much you spend for each item monthly.
The envelope method is helpful if you are still unsure of how much you are really spending for a particular budget.
For example, you are still not sure how much you really spend on your groceries monthly. Then start putting an approximate amount in your envelope for the first month and see if you will go over or under that amount.
You can observe it for 3 or 6 months and decide how much is your fixed budget from there.
You can also read our article about how to save money on your grocery shopping if you are having a hard time with your grocery budget.
3. The envelope method can also help you save money.
This method can help you save money because if you have money left in your envelope after each month, then you can go ahead and keep it and refill the envelope with your allotted budget again for the next month.
If you are interested in learning other ways to save money, you can also read this article.
4. It can help you become more disciplined.
With the envelope method, you will learn to be disciplined and organized.
If you do not trust yourself so much when using credit cards, then starting with this envelope method is a good way to train yourself to be more disciplined with your spending.
5. It’s easy and can be combined with other methods to help you budget and save more money.
This envelope method can be combined with other methods, and it can be more effective for you.
You don’t have to do much with this method.
Cons
1. You will only be dealing with cash if you stick with the envelope method.
The envelope method is very manual.
This method can be a little bit limiting without other options but cash.
2. There is the risk of theft.
The envelope method requires you to hold your money, so you have to withdraw your money based on your monthly budget.
You might be holding a lot of money and just keeping it in your room or drawer, which can be risky because if someone breaks in and takes it away, you won’t have anything to spend for your needs.
So you have to make sure to keep your envelopes in a safe place and have emergency funds.
3. There are tendencies to pull from other funds if the other amount is insufficient.
Suppose your money in one envelope is not enough. In that case, you can easily get money from the other envelopes because the money is already there, and this will not help with your budgeting.
So you have to talk yourself out of doing this.
Can I combine the Envelope method with other budgeting methods?
The answer is a definite Yes!
As I mentioned at the beginning of this blog, I will be combining this method with the Google sheets tracking income and expenses.
I will also be managing this with my online spending because I still have my credit card, and there are things I still pay for online, which is more convenient.
How do we combine this with other methods of budgeting?
Writing down all your expenses is very helpful when combining this method with other budgeting methods.
Like the first step in the envelope method, write down all the expenses and check what expenses you are paying using your credit card or through online payments.
For me, these are the internet bill, the rent, my SSS contributions and the groceries being paid online. So every month after receiving my pay, I transfer the payment for these items online. As for the groceries, I normally pay through my card, so I need to set aside every month on my card.
Now, what’s left of those expenses are my electricity bill, market expenses, etc., which I normally pay in cash.
The corresponding amount will now be put in an envelope and will be spent accordingly.
Aside from this, I still want to track all my expenses so that both online and cash expenses will still be tracked monthly using a Google sheet tracker.
Conclusion
The Envelope method of budgeting and any other method we use to budget our income and keep track of our expenses takes time and hard work.
It’s not always easy to deal with money, but this is very important for us to achieve our goals.
Whatever method you choose this year, just enjoy the process and learn as much as possible. Try other methods if this envelope method does not work for you, and always explore different ways to ensure you’ll be able to save and manage your income.
Everything you are receiving is a blessing. All you have to do is manage it properly, and you will surely get more of it.