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Envelope Budgeting



Envelope budgeting is a technique made famous by Dave Ramsey to teach you how to curb your spending and teach you discipline. It’s a budgeting method that allows you to plan how you will spend your money in advance.

This will not only allow you the freedom to spend your money as you choose, but also helps halt spending sprees that can slap your account balance with overdraft fees. Making a conscious choice of how you are going to spend your money beforehand will allow for discipline in your everyday spending choices.


Account Balances vs. Envelope system

boxing kangarooIt’s very common for people to use the account balance system when making their spending choices.


What is the account balance system?

Great question! This is when you look at your deposits, see how much money you’ve already spent, and make a choice to purchase something based on your account balance.

Deposits – Withdrawals = Account Balance

This is great in the short term – or just a quick check up, but let’s look at a scenario where this might get you into more trouble than it’s worth.


  • Sally gets paid $2000 at the beginning of the month.

  • Sally sees that she still has $1200 by the 15th of the month. This is great! She made it half way through on minimal spending and decides she wants to treat herself to a few new outfits.

  • She buys a few outfits for $300 and then decides to eat at a fancy restaurant and spends another $50.

  • Sally still has $850 left – and seeing that she only spent $800 the first half of the month this seems like a good scenario. Except one little detail. Sally also forgets things.

  • Sally forgot that her rent payment of $450 is due on the 25th.  She also forgot that her water and electric bill are also due at the end of the month which is another $175.

  • Now, she has to make it on 2 weeks spending under $225. Sure, she could eat Ramen every night for dinner – but when her car breaks down, now she is very worried that her account will be over drafted and she will have to pay those fees on top of everything else!


Have you ever found yourself in a similar scenario? I know I have. I remember in college when there was a time that I literally had $.02 in my bank account – THAT was scary! And yes, I ate Ramen for dinner – a lot of Ramen…

If this has ever happened to you, or if it’s still happening, then you might want to consider the Envelope System.


No, seriously – What is an Envelope Budget?the answer

This is a budgeting system designed to Plan and Track ALL your projected expenses. This is the rent payment, the water bill, the phone bill, grocery shopping, gas money – any category of items you knowingly spend money on each month.


Here’s how it works:

When you get paid, cash your check! If you get paid 1x a month, you can choose to cash half of it – especially if this is a new system. That way you can see how you are doing in the middle of the month and learn to play around with your numbers until you get them right.

Buy envelopes – standard, Manila, whatever you prefer. (or, if you’re broke, staple 2 pieces of paper together to make your own!)

Write a category on each envelope – 1 category per envelope. You will most likely have one for RENT, one for GAS, one for WATER/ELECTRIC, GROCERIES, etc.…You’re going to need a lot of envelopes!

Decide upfront how much you are going to spend in each category.

Start with the payments that are consistent, (most likely your Mortgage, Cell Phone Bill, Car Payment, Cable Bill, etc.…)

Then, put the exact amount of money (that you cashed) into each corresponding envelope.

Next, decide your other categories (restaurants, groceries, etc.…) Then, decide how much money you will spend that month (or half the month if you have decided to go that route) and put that amount of money into those envelopes…Did I mention that you will need A LOT of envelopes???

They Even Come In Pink!

If you have extra money left over, you can add more to a specific category – or what I do is set aside a MISCELLANEOUS fund for when the air conditioner breaks, etc.…

Use ALL your money. Put it somewhere – don’t just leave it without a home. (you can always revisit this later: see important notes below)

Finally, throughout the month, every time a bill comes up, grab your cash and pay! There’s no fuss and no wondering if the money will be there because YOU decided BEFOREHAND to set that money aside for that specific purpose.


What happens when you run out of money?

You stop spending in that category. Don’t go out to eat if it’s not planned in your budget. If you’re friends call you up to go out, volunteer to be the designated driver. (*tip: most restaurants give the DD free fountain drinks)

If you run out of grocery money – you might have to eat rice and beans a few nights.


Three things you learn when Envelope Budgeting

1. How to allocate all money to specific categories

2. How to Control Impulse Spending

3. Shows you practically and in real life how much you’ve spent and how much you have left to spend.


  1. Celebrate your left overs

2. Don’t Cheat! If you get to the store and forget your envelope at home – turn around and go back for it!



This is a tool to help you allocate where your money goes. Are you going to get it right the first time? No. Will have to adjust and re-adjust your categories and your envelopes until you find a routine and system that is personal to your own lifestyle? YES!

Please don’t starve for the sake of ‘doing it right.’ If you budgeted $175 for your water/electric bill and it only costs you $125 for that month, then you can plan on moving the extra into another category that might be running low – groceries/gas, etc.…

Remember THIS is your budget. This is YOUR lifestyle. No one can come in and magically set up a perfect budget for you. YOU have to do it.

Once it becomes a habit, I promise that you will barely notice it. And it really is freeing knowing what you get to spend money on each month!

My husband and I each have money set aside as our ‘blow’ money. This means we can spend it on whatever we want – no questions asked! If I want to spend it on Coconut water and Yoga, I can!



Isn’t carrying around all that cash dangerous? Probably. But if it’s the discipline you need to get you started on your way to having more control, then do it – even if it’s just for a while. But if you want a more secure way, there are many programs out there that will allow you to follow this system digitally either by APP or computer.


Or go mobile with these TOP BUDGETING APPS.

If you want more personalized advice on how to use this budgeting system, drop me a comment below! I’d love to help you get started.

Looking for ways to save money? Check out these top Money Saving Restaurant Apps and Top Online Coupon Websites!

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