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The Envelope System, for Beginners

14K views 32 replies 25 participants last post by  Scarlett_Kaye 
#1 ·
I was writing this elsewhere, but then I thought, they may already know this, and someone else may not, so I figured, its half written up already, I may as well make a new thread of it.

SO here goes. The Envelope system, for beginners. This is how, when your money is out of control, you gain control if it again, one step at a time.
--------------------
Start your budget by figuring out every single dollar you HAVE to spend. Put it into categories. Food, utilities, rent, insurance, car payment, minimum payments on debt, everything. How much you MAKE isn't important, its how much you MUST spend. Your first pass will be wrong, but do it anyway. Next month, you'll improve it.

Write down each category on a page, with the minimum you must spend in a column net to the category name.

Now, on a new page, write down the same info, but in priority order. Your tip 5 priorities are:
1) FOOD
2) RENT
3) UTILITIES
4) INSURANCE
5) CAR PAYMENT

After that, go in priority order based on what you Must have to survive at the top, down to what you owe other people at the bottom. DEBT LAST and to hell with the creditors thinking they come first.

On this page, leave room for a 3rd column.

Now, when you get paid, work down the page from top to bottom, and in column three, spend every dollar you got paid until there's no money left. Thats where your money goes. When you get paid again, go back and update the numbers.

Cash your checks, for now, don't leave the money in the bank or it will fly away from you, because right now you're NOT in control of your money. (Sorry) Instead, make an envelope for every item, and put the money in it based on the budget, from top to bottom, as the money comes in.

So for food as an example, say you need $200/month. You get paid $75.00 one week. Put a $75 in the allocated column:
Code:
Budget, July 2007
CATEGORY BUDGET ALLOCATED
---------- ------- ------------
FOOD        $200        $75
RENT         $500        ---
UTILS        $300        --- 
and so on...
Put $75 in the envelope. Use that envelope and ONLY that envelope for food.

Now next week you get paid $250. Add $125 to food, and $125 to rent.
Code:
Budget, July 2007
CATEGORY BUDGET ALLOCATED
---------- ------- ------------
FOOD        $200        $XX $200
RENT         $500        $125
UTILS        $300        ---
We've increased food to its max budgeted amount and started putting money in the next column.

Put $125 in each envelope. DO NOT PUT ANY MORE MONEY IN THE FOOD ENVELOPE THIS MONTH. Spend the money from that envelope for food, and only that money. If you absolutely MUST spend more than you allowed for, say, food, then increase the food budget, but leave it increased going forward. Like I said, you'll start off with wrong numbers, but in 2-3 months, you'll nail it down.

Continue this way, and review the budgeted numbers every 2 weeks, and update the allocated column every time money comes in.

At the end of the month, do a new sheet for August, and start over. If there is money left over at the end of July, pay down debt with it. Do not carry it over to next month. If you run out of debt, then you have a small party. :D

This is just the basics, but I hope they are useful to someone. :D
 
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#31 ·
When I didn't use the envelope system, all I did was a mental thing where I determine whether a purchase is "Necessary" or "Unnecessary". It worked but I realized that I underspent to the detriment of my lifestyle. Since then I switched to the envelope system and believe me it works. Not only does it compel you to save, it also compels you to spend on things so you won't be overly frugal.

I used a modified set of envelopes:

1. Food
2. Gas
3. Rent
4. Electricity
5. Water
6. Transport (like when I need to use the bus or the train)
7. Credit Card Bill (I have stopped using my card and I'm just paying off existing debt)
8. Health Insurance
9. Leisure
10. Petty Cash
11. Savings

Note that there are two additional envelopes, leisure and petty cash. I specifically placed a leisure envelope and put $30/week so I can compel myself to take a break and relax every weekend. There's nothing worse career-wise than getting burned out at work.

If I don't use up all of that $30 for that week, the balance goes to the petty cash envelope. I placed a petty cash envelope but it's downright IMPOSSIBLE to anticipate all of your expenses. There will be times when let's say you get a flat tire, or you have to go to the dentist, or it can be as simple as being suddenly invited to a wedding. Please note however that petty cash can only be used for necessities and not luxuries. For whatever luxuries you want, only the leisure envelope should be used which is transferred to the petty cash envelope at the end of each week.
 
#33 ·
I need to try something like this for just my shopping. The bills I have no problem with getting them paid by check, it's all good - however any money left over that gets spent and should be saved, that's where the problem is. Have it in the bank, have a debit card and yeah - there it goes! I can see why this method would work well 'cuz if you only have cash, you are much more conscious of how much you are spending.

Thanks so much for posting this! I realize it was posted a long time ago but still it is very relevant to those who haven't heard of or have heard of but haven't thought of using this system till now.

Scarlett Kaye
 
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