The "B" Word: Budgeting

When it comes to financial fitness, a sound, practical budget is required no matter what your goals are. While some have decided the envelope system of budgeting is no longer useful as we don't use cash very often, there are still tools out there to help.

A budget is simply defined as a method to organize your spending. Some of us find just listing our monthly expenses and projected costs based on previous months will be the most helpful. A budget needs to show you what your spending patterns are, and mentally adding up your expenses is not going to give you a clear picture.

The Envelope System:

To use any budgeting system effectively you need to know how it works. We understand the premise behind budgeting; however the specific system you use can have different basics. The envelope budget is an older style for creating your household budget. It worked fifty years ago when it was created because most of our household needs were paid by cash.

The premise behind the envelope system is this:

You will have an envelope for every spending category. So you should have envelopes for rent, food, transportation, and so on. Then you take your pay check and cash it. The cash is going to go into the envelopes based on how much you feel will be needed for that specific category. For example if you know or estimate you will have $80 dollars for the electric bill for the week you would need to put that amount in the envelope. Then you would use this money for your bill. If the electric bill is more than you budgeted for you would have to borrow from another envelope and replace it in the next pay period. The electric bill is usually a monthly expense so in reality you should budget a weekly amount to total what you expect the bill to be. If the bill is lower than expected you would have savings in that category for the next month or to use in case of a shortage elsewhere.

Does the Envelope Budget System Work in Today's Mostly Cashless Society?

Many consumers don't feel the envelope system budget works, but this isn't really accurate. You just need to make it work for the current market. Many of us use debit cards linked to our checking account. You can modify the envelope system to work for use with debit cards.

One way to modify the system is to use a "pretend" envelope budget, in which you place a paper receipt for that category. This receipt would tell you how much money you placed in there for the week. This way when you go shopping or pay bills you can see how much you allotted for that specific category. If you go over you would then need to use money from another envelope.

To use the envelope system of budgeting in this day and age it takes a lot of discipline. You need to make sure you either use cash for your bills or that you use a "simulated" cash system. It is easier to go over in the store with a credit card. In fact several individuals are beginning to use cash just to stay within budget because other budgets don't work as well. If you are struggling with overspending, you might try the envelope budget using the true cash-based budgeting system, the envelope.