Budgeting with Envelopes

Sticking to a budget can be difficult and frustrating. As a single-income family, though, you may find it quite necessary to do just that. When we first embarked on this single-income journey, we found that using envelopes to budget each month’s cash worked quite well. The bills were all paid by check or online, but we still had groceries and household items to purchase, along with the occasional dinner out.

Everyone’s personal finances are different, but we started out with approximately $550 in cash every month. One of us would withdraw this amount from the bank and then we distributed it into 6 envelopes labeled for our various needs. The categories that we used were: Groceries, Household, Misc., Pet, Medical and Entertainment. If you choose to plan your budget this way, first determine the categories and amounts that you will need every month. As the primary spender (a.k.a. wife, a.k.a. mom), I kept the envelopes in my purse. We began by trying to keep the envelopes at home and then I’d just take the specific ones I needed, but I invariably forgot the envelopes altogether or needed cash from a different category. So eventually, all the cash ended up staying with me at all times. Once that was happening, I ditched the envelopes and found a wallet with three dividers for cash. I divided each of those with a brightly colored piece of paper and labeled each section. But we still have the same concept.

As the cash was spent from each category, we put the receipts in the appropriate envelope. In cases of no receipt available, we just wrote out our own note for the envelope. This process really helped us keep track of our expenses and watch our spending. By seeing exactly how much cash was left in, say, groceries, we knew what we’d be eating for the rest of the month. If there was cash left over in a category at the end of the month, it stayed there and was carried over to the next month. This was best for areas like Pet and Medical. The small amount of money ($40) in the Pet envelope added up each month and then covered her yearly vet visit and a bag of dog food every three months or so.

Occasionally, we would run out of cash in one category and have to borrow from another envelope. This usually worked out ok, as long as we left a note in the envelopes saying how much was owed and from which category. All the change was taken out at the end of the month and put in a separate ‘coin jar.’

The biggest problem with this type of budgeting is when you shop at a superstore like Target and you make purchases from several different categories. We didn’t like to make three or four different purchases, but that was an option. Another option was to pay it all from one envelope and then adjust the cash based on the receipt when we got home. It was because of this problem that we eventually moved on to paying almost exclusively with a credit card.

After about a year of using the envelopes and wallet with dividers, we had a much better handle on our monthly spending habits. Our credit card gave us vacation points with every purchase, so we decided to use plastic instead of cash. This is certainly harder to do in terms of knowing what you have already spent during the month. We make it a point to go over our budget plan together at least once a week to make sure we are not spending more than we earn. Cash is still occasionally necessary throughout the month. Therefore, we still withdraw approximately $40 in cash at the beginning of each month and carefully keep track of how we spend it. It is mainly used for tips at the local cafe, small grocery purchases and charity giving (girl scout cookies, etc.).

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