Do you dedicate hours to create your budget? Then when it comes to the execution of that budget, you struggle big time. If following through on your budgeting decisions is your downfall, you may want to consider envelope budgeting.
What is Envelope Budgeting?
Envelope budgeting is a cash-only method of budgeting. It’s one of the best methods to help you control your spending.
It’s a process of allocating specific amounts of cash to envelopes that are pre-defined based on their spending category and then spending only from your envelopes. Once the envelopes are empty, you stop spending.
Some of the categories you can use to define your envelopes are groceries, entertainment, clothing, beauty or personal care, and flash cash (or misc. spending).
Is It Effective?
If controlling your spending is an area of weakness, envelope budgeting can be one of the most effective methods. Cash is king and when you’re envelope is empty, you’re done.
Envelope budgeting speaks to the heart of psychology. Simply put, it’s harder to spend cash than it is to swipe your debit card. Seeing the amount of cash you have available to spend in your envelope is a reminder to pause and question the necessity of your purchase before you spend.  It helps you to spend wisely and make better choices.
Advantages of Envelope Budgeting
The biggest advantage of envelope budgeting is the discipline it develops through spending cash rather than swiping your debit card. As mentioned above, spending cash will force you to consider your choices, especially as you see your envelope closer to empty.
No overdraft fees is another pro to this method. You can’t overdraw your envelope. Once your envelope is empty, you’re done.
You don’t have to use plain white mailing envelopes. You can if you want, but one of my favorite things about using envelopes to facilitate my monthly budget is the fun designs available. Do a simple search on Etsy for cash envelopes and you’ll be certain to find something you like.
The Cons of Envelope Budgeting
I despise going to the bank. I think the inventor of bank deposit by phone is one of the greatest people in the world. Which is one of the reasons envelope budgeting can be difficult? You need to go to the bank/atm periodically – the timing will depend on how often you’re paid and how your budget is set up.
If you’re big on reward points accumulated through credit card spending, you’ll need to find an alternate method to earn those points because you won’t be using your credit card with cash envelopes. However, I think you’ll find this is also a benefit, particularly if you struggle with overspending.
Are you married? It’s going to take a bit of time to 1) get your family on board and 2) work out the kinks with allocating the cash across the family. Does one spouse get the grocery cash and another get the flash cash? Or do you split it evenly among each other or some other determined split such as 70 / 30? There is no hard and fast rule, and what works for one family, won’t work for another. Sit down, have a candid conversation and agree on some basic rules and guidelines. Keep experimenting until you find what works for everyone.
Do you incorporate envelope budgeting into your finances? Has it helped you stay on track? Let us know in the comments below.
Read more:
Advantages of Budgets (and Limits too)
How to Bulletproof Your Budget With a Sinking Fund
5 Budgeting Tips to Guide You Through Life
Kate Fox is a former CPA, with twenty years of experience in public accounting and corporate finance. Born and raised in Alaska, Kate is currently based out of southeastern North Carolina. She loves coaching others on personal finance and spends her free time traveling with her family or relaxing by the pool with a good book, probably about money.