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Envelope System for Budgeting

Using the Envelope System for Budgeting

Budgeting is probably my least favorite thing to do. Sure it requires planning (which I love), but it also requires that I not spend money that I want to spend. And reminding myself that I'm a broke graduate student. And it makes me want to cry. At least it use to make me want to cry. Things have changed my friends. I'm finally at peace with budgeting!

Using the Envelope System for Budgeting

About 6 weeks ago I sent an email to Chelsea asking her for tips on how she and her husband use the envelope system for budgeting. I had heard of the system but wasn't quite sure how to put it into action. The basics sounded reasonable: create a budget and use cash to pay for everything (well, almost everything). Since our bank in South Africa charges a fee every time we use the debit card, moving to a cash-based budget seemed like the best option.

Since a lot of you were curious about what the envelope system is, both Chelsea and I decided to post about how we approach budgeting using this technique. You can find her post here. While she is a seasoned expert, I'm still trying out the system. Here are the steps that I took to get started:

Where To Start – Creating Your Budget

How Much Money Are You Willing / Able To Spend?

Simple enough, right? Most of you probably have some sort of steady /reliable income because you're a big kid with a real job. Great. Look at your income and write that number down. The idea behind the system (or budgeting in general I suppose) is that every penny has a home. So think about how much money you want to put into savings each month. Good. The rest is probably what you'll use as your living expenses for the month.

Some of you are graduate students or individuals with varying incomes. And some of us (ahem) are graduate students, with a varying income, temporarily living in another country. Since this trip had been planned for quite some time, I had been saving money for living expenses. I added my designated money from savings plus a low figure for my income and came up with the amount of money I'm willing / able to spend every month.

This is 100% of my monthly budget.

Determine What Needs to be Paid in Lump Sums or With a Card.

Our landlords asked us to pay all 6 months rent up front when we first moved in. This was great because I am never concerned about paying late but it also threw my new budget for a loop. I also realized that some things need to be paid for with a debit card. Examples for myself include health insurance, student loans, and my storage unit in California. I did the following to figure out how much spending money I had left over: 1) calculated how much money I would spend per month if I paid rent on a monthly basis. 2) Calculated how much money I expected to pay with my debit card. Let's say that all of those expenses combined resulted in 40% of my monthly budget. I now know that I can withdraw 60% of my monthly budget in cold hard cash.

As a side note, I prefer to withdraw weekly as opposed to monthly. I think that it reduces my temptation to overspend. If I don't see the money I won't spend the money.

Set Up Your Budget Envelopes / Categories and Determine How Much Money Goes Into Each One

Every expense category must have a home and that home is in a separate envelope. This is going to be different for each person or family depending on how you typically spend your money. There are the categories that I'm currently using:

+ Groceries + Dining Out + Entertainment + Taxi + Phone + Utilities + Laundry + Alcohol (yup) + Extra (fun money that I can do whatever I want with. Buy lunch at school? Sure! Save it up for a nice bottle of wine? You betcha!) + Deposit (extra surprise income – yay, money to make up for emergency debit card usage – boo, budgeted money that I didn't spend the previous week – high five, self!) + Sushi (a girl can dream)
Using the Envelope System for Budgeting

I also leave some extra money in my bank account as a cushion. This is especially important for me since my budget is in USD but I spend in ZAR, which means dealing with changing exchange rates. The biggest bulk of my budget goes into the food (groceries, dining out, alcohol) and entertainment categories. Since Matt and I are traveling until December we wanted to make sure that we budgeted enough money to allow us to take weekend trips and explore South Africa. Since I am temporary living in another country, my categories look somewhat different than they would at home in California. For example I would have additional envelopes for gasoline, car maintenance, etc.

Stick To Your Budget!

The Hardest Part

If I had it my way I'd have sushi and wine for every meal every day. I'd also be broke and living on the street in about 2 weeks. I only spend what I have in my envelopes. Once it is gone, it is gone. I have, however, pulled money from another envelope to cover the expenses in another. I don't like to do it often but sometimes I'm too lazy to cook and want to order pizza.

Plan What & When You'll Buy

As you can imagine, I'm not a big fan of walking around with a ton of cash so I leave all the envelopes full of that sweet money at home. Instead, before I leave the house I think about what I may need money for. I spend with a purpose and a plan. If I know that I need to get groceries I 1) plan a day to go so I know to bring money, 2) make a meal plan, 3) ONLY BUY ITEMS ON THE LIST. That last bit is really important. I have wandering eyes and often buy more cookies than I should. I have found that when I stick to my list I spend within my budget. When I let my tummy get the better of me … well let's just say I had to pull money from my ‘extra/fun' envelope to cover it.

Keeping Track of Every Penny

Whenever I buy something, I always ask for a receipt. This was the most difficult habit for me to form. Once I get the receipt I write the category at the top. Then went I get home I put the receipt in the appropriate envelope. Done and done.

At the end of each week I record how much money I spent in each category in a google doc spreadsheet. This allows me to see how I spend per period. I'm a little OCD and have a sheet for each month (broken into columns for each week) and one sheet that has all the monthly totals. I know that it sounds crazy but for me, organization is key. The minute I stop holding myself accountable I spend all my money on Kindle books that I probably won't even read (true story). Here is a screen shot of the spreadsheet that I use. All the purple cells are equations that automatically update how much money I have left to spend (because I don't trust my own math skills).

Budget Template, Envelope System

Evaluate and Revise

Did you end up over-spending in one (or more) and under-spending in another? I realized that I had budgeted too much money in my groceries category but not enough for taxis and utilities. Since I have a set amount that I am not willing to go over each week I updated my budget to have more in taxis and utilities, drawing from the excess in groceries and some of my entertainment funds (heartbreaking, I know). It sucks to have to move money out of the entertainment category but since it wasn't a necessity, it was the first to go.


There are always exceptions, right? I probably should have mentioned earlier that I built a little buffer into my monthly budget. Since I'm traveling around South Africa, once-in-a-lifetime opportunities may present themselves. Like our trip to Johannesburg. I gave myself a little cushion in my savings to allow for these types of events. BUT I try to underspend before and after the trip. For example, I underspent my budget by 40% the week after I returned from our trip.

Benefit of Using Cash

I'm not tempted to spend money that I realistically do not have. Yes I carry a credit card with me for emergencies (like a wine sale) and if I have to use it then I take that amount of money from the appropriate envelop and place in my ‘deposit' envelope to be returned to the bank (Chelsea taught me that tip).

I've only been using this system for about a month now so I'm obviously no expert. But I'm happy to report that I finally found a budget that I can follow and stick to!

Now what about you… Could you use the even lope system? How do you budget? Do you use a special system to app to keep track? I'd love to hear your thoughts!

Other BOW Posts:
4 Ways to Use Evernote to Organize Your Life
8 Tips and Apps to Organize Email
Using Wunderlist & the Pomodoro Technique to be Productive

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Nicole is a treasure hunter and pup mama located in Seattle, Washington. Loves travel, politics, lifestyle, TV, & wine. She's an unapologetic SJW & feminist AF.

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  • I’ve always, always wanted to budget but have never gone down that route, yet. I really wish I had used this envelope system when I studied abroad in London. As you can imagine, I went crazy in that city, shopping away at all things fun, fashion, and food. As a now pretty much broke, recently graduated college student this budget would be useful to get a hold on. Thanks for sharing!
    Simply Akshara

  • Budgeting/financial stuff makes me want to cover my ears and sing ‘la, la, la!’ really loudly, but we’ve got used to it now. We use a spreadsheet for ours, def makes a difference.

    • that is actually how I felt once! Coming up with a system that works for you is so important!

  • This is so detailed! Is it weird that I love budgeting and organising stuff to the last detail? Maybe I’m still in wedding-planning mode…

    • not weird at all. I’m slowing learning to love it. Except when I see something that I want but can’t afford :(

  • I am going to give this a try next month, I’m determined to keep better control of my money!

  • Good for you! The husband and I tried it, but with our completely separate schedules and such it just didn’t work for us. :) It’s a great program! If I was single I think it would work for me just fine.

    • yeah, it can be difficult when you’re on completely different schedules. Luckily we’re pretty similar so it has been easy (ish) for us to do this system. Oh, I suppose I didn’t mention in the post that this is how we both budget our money. So far so good with us!

      • Thats awesome! Do you guys have a joint account or separate? Maybe if my husband did separate accounts it would be easier as well! We share our spending though. :)

  • taylor

    oh wow, this is super organized. i still live @ home, but when i do have the chance to move out…i am gonna need to adopt a plan like this!

  • I was just saying on Chelsea’s blog that I think Jurgen and I will be giving this approach to budgeting a go! We’ve never budgeted before (so bad) and really need to start saving. Thanks for your tips… I’ve bookmarked this under ‘useful tips for life’ :)


    • Jenna, I’m honored that this falls under useful tips for life! Let me know if you and Jurgen have any questions! This is the second system that Matt and I have used and I like this one far better than our last.

  • I try to keep track of everything in Excel, but I really need to be better about it!

    • it is so hard to keep everything up to date! Or at least it was for me. That is why I love using cash so that I can see how I spend my money, and then using the excel sheet to track across time. Good luck, Alyssa!

  • I have an app on my phone that is similar to this and it REALLY helps with budgeting! :)

  • These are such great budgeting tips! We use a version of the envelope system but since cash money feels totally like play money, we’ve been doing the system with our bank cards and an app. I love how it’s turned budgeting into a sort of game–how much can we save, how close to our goals do we come, etc. Totally a nerdy adult thing to do but it helps make budgeting less scary and more do-able :)

    • turning budgeting into a game is an excellent idea! way to turn something boring into a fun challenge! What is the name of the app that you use? I’d love to check it out

  • I just go to the ATM once per month and when it’s gone it’s gone!!!! I have a pre designated amount that I take out every month. Most everything else is just auto paid by bill pay and transfers to savings are automatic so I don’t have think about it too much. I love planning the budget too! But the sticking to it part does really suck sometimes.

    • Sounds like a similar concept! I like how it seems like more and more people are moving back to a cash-based budget. I could plan and plan and plan and love life but the moment I realize that I can’t buy something because it doesn’t fit into my budget? heart breaks ;)

  • I love the envelope system! I use it mainly for household expenses and it really works out well. Now I just have to get on board for personal spending and I’ll be set!

  • This is such an awesome post! I just started my first full time job, so I’ve been researching different ways to budget. I want to get into the habit of this now instead of trying to get into the routine later. There are sooo many things I need/want to budget for! I feel like the system that would work for me is a version of the envelope system, since I’m not sure if I’m okay with withdrawing all my money for the month since my bills are taken automatically from my account, but I’m not exactly sure when since I just moved here. This is such a great post! I’m actually in the process of replicating your Excel sheet because it’s soooo much better and less confusing than the one I found elsewhere. Thank you so much for this!

    • congratulations on your first full-time job! so happy that you found this useful! I was worried that it would be too confusing.
      Some of my bills come out automatically (health insurance, student loans, storage fees) so I leave that amount in my bank account and take the rest of my budget out in cash. Some things are just easier to leave online!
      also, if you’d like I’d be happy to send you a copy of my spreadsheet that has equations to automatically calculate your remaining budget.

      • Thanks so much :) Would you be able to send it? That would be sooo helpful! I have no idea how to use the fancy equations on excel. Would it mess up the equations if I copied and pasted some things into the spreadsheet?

  • i’m so glad that we teamed up for this! i’ve taken down some of your tips to try for ourselves! like being ultra organized with that spreadsheet, dang girl! that’s awesome, my OCD side loves you even more. I would love to be able to track what we save and spend and look at it over the months. I think it would help after a few months to see which envelopes need more and which could use a little less. thanks again for doing this with me!

    • thank YOU for the idea to do this post, my dear. SO happy that we did this. the planner in me really ran with this idea.

      thank you for answer my questions and emails about the system. Oh and basically saving my budget! xoxo

  • This is such a good idea! With so many new bills, I’m getting a little overwhelmed!

    • thanks, Rachel! I found myself less overwhelmed once I had a solid plan on how I was going to budget / approach my bills. Unlike my old plan of letting them sit in my mailbox :)

  • MissyChances

    Found this through Travel Babbles twitter – I love this idea… In fact I am blogging about it tomorrow. I need a little extra help and I think this is something I could try. I will link back to your post here :-)

    Missy x

  • Haha emergencies like a wine sale… This seriously is a great method, the Hubbs and I have been looking for a new way of budgeting and this might be it!

  • SimplyEvani

    Gah I was just thinking about this on the drive to work today. Rob and I need a real budget. I wish the banks let you digitally create “envelopes” to budget money. Why isn’t this invented? Or is it?

  • This is a really good idea. I like being able to see actual money because when I use my card it sort of feels like I have unlimited amounts! I still hate budgets though…haha.

  • shannon

    i think i’m allergic to budgets.

    • NYC Style Cannoli

      I second that comment!!

  • Jelli

    Nicole, we just started using the envelope system this month. I’d meant to begin ages ago, but just recently Husband got on board and we decided to try it out. So far, so good, but remembering to grab cash on my way out the door is tough since I’m used to using a card. Visiting from Postcards from Rachel.

  • Kris Logsdon

    Can I get a copy of the excel spreadsheet please.

  • I have been wanting to try the envelope method for a while and this was exactly the post I needed to get started!! Thanks for sharing, I am excited to get mine all set up now :) GREAT tip on keeping your receipts in their respective envelopes!!

  • I was googling how to track the envelope system, and was so excited to see your blog on the first page of google! Good job, girl! Also, I love these tips. Thank you so much!

  • NYC Style Cannoli

    great information here Something I need to do too but keep putting it off Nice to know so many use this “age old” method! I am really enjoying your site very much!!