How to Use the Envelope System to Save Money
Find out how you can easily have a budget and use the envelope system to save money.
Have you ever heard about using envelopes of cash to save money?
The envelope system is notorious for helping people around the world save money, but how does it work?
The envelope system is to inspire people to be better with their money. It’s designed to help you stay out of the red and to live within your means. When I first heard of this method I thought it seemed a bit odd, but if you actually utilize the system it really will help you to save money.
I first heard about using separate envelopes for different expenses years ago through an online article about Dave Ramsey. I began to research more about it because carrying cash was something that I never did. I still struggle with having cash on me now because I just always have my debit card.
If you’ve never heard of the envelope system to save money or are unsure how it actually works then follow along and I will break it down for you.
Use the envelope system to save money:
Find out how you can easily have a budget and use the envelope system to save money.
Cash is king.
Before you’re even introduced into the envelope system, understand that cash is where it’s at. The envelope system is designed for cash to be used. It doesn’t really make sense to put a credit card in an envelope and try to use it. You can only use cash while utilizing the envelope system.
This may be a difficult step for you. Especially if you are like me and like to keep as much money as you can in your bank account.
Overview of the envelope system.
The idea behind the envelope system is to create a budget and then use the envelope system to stay on track with that budget. For example, a family might use envelopes for their groceries, family fun, gas, and so on. You will want to come up with a certain amount of money that goes within the envelopes. The idea is that once that money is gone from the envelopes, you have nothing else to spend, that’s it!
It may seem easy, but in the beginning, it is difficult. It is hard to designate a certain amount of money for each envelope category. This is definitely a trial and error process. Learning how much you spend and when you spend it will come from your monthly budget.
{Related: Yearly & Monthly Household Budget Template}
If you were planning on using the envelope system then you will want to have a separate envelope for each category of your expenses.
Like I mentioned above you will want one for groceries, gas, entertainment, clothing, etc. The next step is figuring out how much money to put into that envelope. This will depend on your budget and for the time frame you will be budgeting.
You may want to do it weekly, bi-weekly or even monthly. Once you have a set amount then that is all you get for that category. If you allotted yourself $50 for entertainment for the month and it was gone then you cannot take money from another envelope to go to the movies. That would defeat the purpose of using the envelope system.
It is designed to help you change your spending habits and teach you discipline when it comes to money. You can use any system you want to manage your money, but in the end, you are the one who makes the choices. If you cannot change your mindset then you will not be able to save money.
The envelope system can help you save a lot of money. Some wonder how the envelope system can help save them money. Well, you are using cash, which doesn’t allow you to spend more than you have. If you only take $40 with you shopping in an envelope, then once it’s gone, it’s gone.
The envelope system can help save you money because you’re not paying interest from a credit card. Credit cards can add up quickly if you don’t pay them off right away. And, the majority of Americans are using credit cards because they don’t have the money to pay for the items otherwise.
The envelope system can also help save you money because it’s teaching you to stay on budget. You can think of the envelope system as a built-in accountability partner. Once you have spent the money in your envelopes there's no more money going in again until payday.
Plus, using envelopes can help prevent impulse purchases. You will not be able to buy anything extra when you are grocery shopping if your envelope is empty.
The envelope system works best with a zero budget strategy. What a zero budget strategy means is that every dollar in your budget is spoken for. It’s not like there is a magical amount of money sitting somewhere. Once you have spent the money it’s gone and all of the other money in your bank account is spoken for. This helps you save money because you are telling your money where to go and you’re not scraping for it.
Saving money with the envelope system is all about trial and error. You may need to increase your budget a little bit in each category and that’s okay. Remember the idea behind the envelope system isn’t to deprive yourself; it’s to help you make the most of the money you’re making each and every week. Making wise financial decisions will help you to save more money thank you think while using the envelope system.