The Humble Envelope – Your Ideal Budget Buddy

When it comes to budgeting, a lot of people tend to either freeze at the idea, or turn and run like hell, because it seems like an overwhelming task.

Relax, it actually isn’t. In fact, compiling a budget is actually a lot easier than you realise, and will make your life a lot easier and a lot less stressful as well.

It will be far easier to see where you may be going wrong once you have everything down on paper and staring right back up at you. You will go from a case of, “It can’t be that much that I spend on take aways” to, “We spent HOW much on take aways??????” Once everything is down on paper, it’s far more difficult to ignore the financial freefalls that have been draining your cash faster than you can zip your wallet closed.

You may be wondering by now, where the envelopes come into the whole budgeting process. Everything will be explained as we go along. Promise.

First things first though. When you take that important step to compile a budget, you will need to know exactly what your income is for the month (or week, depending on how you are paid, of course). This may include a spouses income, as well as rental income from an additional property etc.

Start by taking a sheet of paper (or 2, depending on how large your budget is going to need to be). At the top of the first sheet, list all of your incoming finances.

Once that is done, you will need to then start listing every single expense that you have for the month/week. A typical budget would generally include things like rent (or mortgage payment), gas/fuel, phone bill, medical plan, school fees, groceries, utilities, internet fees, magazine subscriptions, an entertainment allowance, as well as any other expenses that recur each month.

Starting with your income amount on top, list each expense below this, and subtract each amount from your income amount, until you have listed all of your expenses. If you are still in the green after this exercise, well done! Most people end up going into the red before they are finished.

This is where your envelopes will start to play their part. They are normally used for the ongoing expenses that need to be met during the month, such as gas and groceries.

Sure, you budget an amount each month for these two important items, but many times, after the first two-week, you may find that your budget for those areas has run dry. This will be where your envelopes come into play.

Set aside an envelope for each week of the month. Take the money that you have set aside in your budget for groceries, and divide it up evenly as per the amount of weeks in the month. You can also do the same for gas, or any other expenses that recur on a weekly basis.

A fair bit of self-discipline will be needed here though, to prevent yourself from simply ‘borrowing’ from the following week’s budget., as this will defeat the purpose of this exercise.

Once the money in each  envelope is finished, then you have nothing left for the rest of the week, until the following week rolls around. It does take some getting used to at first, and you may find that you run out of cash. But I can promise you, that in most cases, there are truly very few items that you will die without having until the following week (emergency medication and things like baby food are obvious exceptions).

After a few weeks have gone by, you will get used to the system, and you may even find yourself with a few pennies or even a dollar or two left over from the budget. Congratulate yourself.

The fun doesn’t necessarily have to stop here though. Bring another envelope into the game, and label it ‘extras’ or ‘overs.’ Should there be anything left from the previous week, put it into this one. You will be surprised at how fast it adds up. These ‘overs’ or ‘extras’ can then be put into a savings account once a month, or they can even simply be set aside to do something fun with. There is no end to the possibilities which this can be used for. Should you wish, you could also use is as an additional debt repayment, or even add it to your initial mortgage repayment.

I am making use of this system ,and it is working very well for me, so I am sure that it will also work very well for many of you out there who need a little help along the way with learning how to budget, and how to spend wisely during the month on essential items.

Comments, ideas or suggestions? Feel free to post them below.