Envelope budgeting has been around for years. There is a good chance that if you asked an older family member they will have either done it or heard about it.
I have mentioned envelope budgeting in a few articles in the past and again recently. It is recommended by financial gurus such as Dave Ramsey https://www.daveramsey.com/, Kumiko Love from the blog https://www.thebudgetmom.com/ and Lauren Greutman from the blog ‘I am that lady’.
Cash is King
Envelope budgeting is part of making cash your king! It really works but it does require some discipline on your part.
The reason it works is that you can only spend what you have on hand even though a debit card has the same principle in that if there is no money in the account you can’t use it.
The act of handing over a card to pay for an item is not the same as handing over the physical cash. Having to hand over cash is a tactile experience and, therefore, creates a more impactful experience and will make you think twice about buying whatever you have in your basket.
Envelope budgeting works
Envelope budgeting, if done right, can remove the worry of getting to the till and not having enough money in your card to pay for everything.
The discipline aspect comes when you run out of cash in one envelope and are not allowed to take money from another.
In my article ‘5 steps to envelope budgeting’, I discuss how to choose your categories and how to get started.
There are obvious disadvantages too which I cover in my blog post –http://kasheringyourlife.co.za/envelope-budgeting-disadvantages/
Each month seems to bring unexpected expenses. I think one of the best ways to see where your money is going and how to choose your envelope categories, is to print out 3 months bank statements and highlight each different category.
This gives you a better understanding of your money while also helping you identify your spending habits, which is the first step to reducing your expenses.
Expect the unexpected
I found that even though we pay an activity levy each year for school and we buy all the stationery listed on the stationery list we get for the next grade, there are always additional school expenses.
School projects and business days are the biggest expenses and we tend to forget about them. My school envelope gets a certain amount of money put in each month whether we use it or not. This way when I suddenly have to fork out some money for some school activity or project, it is available.
When you are struggling financially and living paycheck to paycheck, running out of money for transport or petrol/diesel for your car can be a reality. This is why having a travel expense envelope is very important.
The way we do ours is that at the beginning of the month we fill up all the cars, whether they need it or not, using our cards to earn the loyalty points associated with each. Then we put enough money in the envelope to fill up each car again during the month. It depends on how much driving you do and how often you fill up as to how much goes into the envelope.
If you are paying for transport, work out how much each trip costs and how many you do, then add the amount for 4 extra trips into your envelope. You never know when you might need to go somewhere unexpectedly.
The grocery envelope is used to fund your weekly purchases. I am a big advocate for buying the bulk of my groceries at the beginning of the month online and then only getting bread, milk, fruit and veg weekly.
I also include the money for the parking attendants in my grocery envelope.
This means that at the beginning of the month I use my card to buy my main groceries and the first week’s perishables. Then I work out the cost of the weekly shop. We use 6 -8 litres of milk a week, plus the bread or fruit and veg, so my envelope contains more money than my transport envelope.
I have an envelope for the Sabbath. I put in enough money to cover the minimum needed to have those special meals and, being Jewish this means special meals for Friday night dinner and Saturday lunch.
For non-Jewish people, this might be the money you will be giving in church for the collection and for the big Sunday lunch/dinner.
To those who feel they would like to give money to the street beggars, work out what you can afford and want to give each week and make an envelope for that. Don’t feel guilty when you run out, you have done something good with your money. You consciously thought of people who have less than yourself.
If you have children in school, not only will you need a school expenses envelope but also a party/gift expenses envelope. Work out how much you want to spend on each gift not only for your own children’s birthdays but for the parties they have been invited to. The gift envelope can also be used to put money away to host your children’s parties.
Birthdays come every year and we should budget for them. It is not an unexpected event!
Your gift envelope can also be used to put away money for that office party, the secret Santa, the baby shower, the kitchen tea or the wedding you are possibly going to be invited to.
The gifts that Santa will bring, or the money from the tooth mouse/fairy, can be added to this envelope.
Don’t forget spending money. The point of budgeting is so that you have money to do things that are fun and enjoyable. So have an envelope for entertainment. If your children get an allowance each week, put that money into an envelope so that you can pay them on time. It is a good way to teach children about financial obligations and responsibilities.
One piece of advice is to only have one or two people with access to these envelopes. In the beginning, when you are still learning having a person you are accountable to will help you follow the rules of envelope budget.
Rules are a very important step to making envelope budgeting a success. Here are some that are universal.
- Do not borrow from one envelope for a different category. Once the money is gone it is gone.
- Put the envelopes in a place that, while accessible to you, is somewhere that you will have to consciously remember to go and remove the money.
- Only take out the exact amount you will need for your expected expense.
- You must pay your bills first. This may mean you have less in the envelopes than you would like but it also prevents you from getting charged extra interest and keeps your credit rating positive.
- Any change you get from using that cash goes back into the envelope. It can then be used at the end of the month towards the next month or for a special treat, or even towards a savings account.
Everything worthwhile takes a little effort and discipline. You have nothing to lose from trying.
Want to know more about envelope budgeting, watch my video https://www.youtube.com/watch?v=GsPYLNqMmX8&t=27s
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