What is the Envelope Budgeting Method?

The envelope budgeting method is a relatively straight forward way of budgeting using cash and envelopes. The general idea is that you separate and categorize expenses based on different categories. By separating things based on different categories you can get a clearer picture of what you’re actually spending money on moving forward. This route can help simplify your financial situation and lead to easier budgeting in the future.

How Do You Use the Envelope Budgeting Method?

The general idea for the envelope budgeting method is that you place different categorized expenses into different envelopes. You will spread your income amongst different envelopes and use those envelopes as your “line in the sand” for determining how much to allocate towards each given expense. For example, if your income is $2,500 a month, you will spread that $2,500 amongst different envelopes. If you have a $500 monthly budget for groceries you would place $700 into your grocery envelope. If you have a $1,000 monthly rent expense you would place that into another envelope and so on and so forth. With this tactic you are making it a lot less difficult to go over budget each month since you’ll see how much money is readily available for each given category.

Why Do Some People Prefer This Method?

There’s a lot to be said about the challenges of effective budgeting, this is a good part of the reason why there’s so many different ways to budget. Everyone has different styles and preferences when it comes to money. For most consumers using an excel sheet is a highly effective way to budget, however some prefer apps and some also prefer more traditional methods like the envelope method. The envelope method remains effective for consumers who are mostly “cash” based and prefer a traditional style of budgeting. Many consumers who utilize this method find the simplicity allows them peace of mind with regards to their financial situation.

Downsides of the Envelope Method?

With the envelope budgeting method there are some downsides. One of the main downsides is that you will not be able to accrue credit card rewards and you won’t have many of the associated benefits that come along with modern day banking processes and transactions. Many consumers use credit card rewards to go on free trips and turn their points into future vacations so you will not be accruing any of those rewards with this method. You will likely have less convenience that many other consumers with regards to trips to the banks and ease of payments as well.

Benefits of the Envelope Method

It truly is a simplified way to stick to your budget. This method will likely make you more inclined to stick to a solid budget since you have envelopes of cash that draw a line in the sand for what you can and can’t spend on each month. You also don’t have to adopt this method in an all or nothing manner. You can choose to do a partial envelope method where you use cash for certain categories and stick to traditional credit card and bank transactions with other categories.

At the end of the day, whichever budgeting method you prefer is ultimately up to you. Everyone has their own strategy and what may be effective for you may not be so effective for someone else. However, what is important is that you stick to budgeting and make sure you are utilizing all tools at your disposal in order to increase your financial health and get ahead financially. It’s often quite easy to overlook your finances and let them just remain stagnant but this is something that everyone needs to focus on. We all live in a world where money is a focal point of what we do, day in and day out.