The Envelope System
Once you have your budget in place, using the envelope system can be a good way to stick to your budget. Decide what spending categories you want to try to control using the envelope system. Typically any area where you overspend is a good one to use. For many people this might be food, clothing, and entertainment. For each of those categories go to the bank or ATM and withdraw your budgeted amount in cash. Take an envelope and write the name of the category on the front of the envelope and put the money inside. From then on, whenever you spend money in this category it must come from that envelope. If you don’t use the money for that month leave it in there and add your budgeted amount again next month. If you are consistently not spending the money maybe you want to adjust your budget. Some things you just don’t buy every month though. People tend to buy clothes seasonally, for example.
The advantage of the envelope system is it makes you stop and think. If you’re at the store and want to buy something, you look in the envelope. If the envelope is empty you know that buying that item would put you over budget. If you’re half way through the month and have spent more than half your food money it may not be a good idea to go out to eat that night. Is that toy really worth half of your entertainment budget for the month? It can also help those that have a hard time spending money. If you open the food envelope and there is more than enough money for the rest of the month, you can feel better about going out with your friends.
