The use of money envelopes in budgeting is not a new system, but it is lesser used. Growing up, the only kind of budgeting I knew about was the ledger in a checkbook; remember those? I used the money envelope system when I was working as a server at Applebee’s and RedLobster. It helped me to divide up my tips into different categories instead of blowing it all on a new outfit or some other extravagant item that I definitely did not need.
As I’ve mentioned before, we use multiple methods of budgeting to help us get along. I’ve also told you guys about how we get “mad money” each month to spend on whatever we want. You can see a peek at our budget here. I use the Money Envelope System to budget my “mad money.”
Here’s how the envelope system works:
- You can either choose to make your envelopes or purchase these great ones that we make here. Each envelope should list a category such as Groceries, Gas, Coffee, Bills, Activities, Entertainments, etc. that fits what’s written into your budget.
- Based on your budget (check out how to make one here), determine how much you want to put in each envelope and when you’ll be adding the money. Since we are paid on a monthly schedule, I add money to my envelopes at the beginning of every month. If you’re doing biweekly, you would add money to your envelopes every two months.
Now that you have your envelopes set up, the next important step is knowing when to use them. One of the examples I love to share is when to use your Coffee or, as we like to call it, “Latte Loot” envelopes. Whenever you purchase coffee, you will use the money set aside only in your designated “Latte Loot” envelope. Once you run out of money in the envelope, you can then no longer purchase coffee until you refill the envelope next payday. The same goes for your gas, groceries, or even entertainment envelopes.
If I run out of money in one envelope, can I take money from another to replace it?
This is a good question and something that I like to call “Robbing from Peter to pay Paul.” While you can definitely take money from another envelope to make up the difference where you’re short somewhere else, you’re doing two things. You’re messing up your written budget, and two, you’re completely missing the point of using the money envelope system. This is a lesser-used system because it’s hard, and it takes a lot of discipline to keep your spending habits in check. In the first couple of months, I started using it for budgeting the mad money; I found myself in the middle of months with several empty envelopes.
Now, before I spend money, I take the time to think about my purchase seriously. I ask myself questions like, “Do I really want guac on the side at Chipotle?”. Since this is physical money leaving your hand, you have more of an attachment to it and want to make sure you’re indeed spending it on things you really care about. I love the money envelope system because I can take it with me wherever I go. They fit easily into my wallet without all the bulk, and I can easily grab the one out that I need when I’m ready to pay. I even keep my change in the envelopes because I want to make sure I don’t lose any money within a category.
This system isn’t only for the women in the household. For the men who want to be involved with you, they can do this by using colored paper clips to help keep track of spending.
What do you do at the end of the month when there is money left over?
I talk a lot about how I use the money envelope system on Instagram Stories. At the end of each month, I take whatever’s leftover in my money envelope and put it into a personal savings account. This is okay since it’s my mad money, and I’m not taking anything away from the household. I’m using my leftovers to save up for a really nice handbag purchase way down the line.
Since I feel that living on a budget doesn’t mean you can’t have cute things, I created my own version of Broke on Purpose Money Envelopes that include categories that I feel every family can use no matter what age. I use them so much that even my friends know if the money envelope’s low, then Melody can’t go!
If you really want to be more disciplined about the way you budget, the Money Envelope System is the way to go. Now I’d rather hold on to my money than spend it frivolously knowing that I actually have to part with it instead of sliding a debit card. Have you tried budgeting using the Money Envelope system? If so, share your tips below!
