Does the envelope budget system still work?

Those of another generation have fond memories of a parent sitting at a kitchen table with a stack of cash and envelopes, sticking a certain amount of cash into the appropriate envelopes.

That method has fallen by the wayside as fewer people use cash and rely on debit cards to pay for everything. If you want to keep a discretionary budget, the envelope method can still work.

Read on to learn more about this traditional budgeting method and how you can make it work for you.

What is the Envelope Budget System?

Financial gurus from Suze Orman to T. Harv Eker have talked about different ways to budget your discretionary income. This is the income that’s left over when you paid all of your monthly bills and set aside money for savings.

The envelope method is the simplest method there is. You have an envelope for different categories, from groceries to entertainment. You can have an envelope set aside for special purchases or booking vacations as well. 

When you get paid, you take out your discretionary spending cash and put it aside into each envelope.

How to Use it With Your Online Banking System

About two-thirds of Americans bank online. How does the envelope system work with the convenience of online banking?

With online banking, you can use those accounts for automatic withdrawals of your monthly bills. You have things like your mortgage payments, utilities, insurance, and internet taken out of your bank account. You can also use digital banking to set aside money for your savings account.

Some companies give discounts to those who use automatic withdrawals, so you can save money by using that method of banking.

For anything other than those expenses, use cash. Be sure to get a receipt for all of your purchases. Most budget and banking programs let you take a picture of the receipt and upload it as an expense. You can then keep track of your complete financial picture in the software program.

Advantages of the Envelope System

The envelope system of budgeting is old-school. It’s still relevant because it works. Here’s why it still works.

Limit Impulse Purchases

When you’re out and about you see a shiny new object that you just have to have. You decide that you can just use your debit card and deal with the consequences later.

You can use the envelope system to set aside money for a big purchase that you won’t regret, like the best scope for 308 rifles.

Be Disciplined Around Money

One of the best things about carrying cash is that it teaches you to have a healthy respect for money. You have something that is real that you hold onto and carry with you. When it runs out, you wait until your next paycheck.

With plastic, it’s too easy to have go over your budget by a few dollars. That can add up over time.

The Envelope Budget System Still Works

The way we relate to money has changed with the times. While we tend to rely on plastic to make purchases, we can keep track of discretionary expenses with the envelope budget system.

Want more financial tips? Read these articles in our financial blog.

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