Creating a budget seems to be a no brainer. Everyone appears to have their own way of approaching it. You take your salary, subtract your bills, and if there is money left, you decide what to do with it. Is your method working for you? What are you doing with the money that is left? Is there money left? Are your bills being paid on time? Perhaps, there is a money leak and it's possible that stretching or saving your income becomes increasingly more difficult.

It takes some discipline, but the envelope method can help you implement a budgeting system, that works to assist you, in living within your means. It can teach you to pay yourself first, as well. It's a simple system to put into place.
How Does it Work?

With the envelope system, you distribute your money into actual standard sized paper envelopes, so only the money in each envelope category is spent. The concept is if there is extra in an envelope, it stays in the envelope, applied to debt in another envelope, or can be placed in your savings envelope.

The following is a list of possible envelope categories:

Yourself
Mortgage/Rent
Electricity
Gas
Water/Sewer
Garbage
Home Maintenance
Phone
Property Taxes
Laundry
Hair Care/ Hygiene
Clothing
Self-care
Groceries
Meals Out
Child Care/Support
Auto Loan
Gasoline
Auto Maintenance
Public Transport
Car Registration
Parking
Auto Insurance
Property Insurance
Home Insurance
Health Insurance
Disability Insurance
Renter's Insurance
Cable TV/satellite
Subscriptions/Memberships
Health Clubs
Self-Improvement
Gifts
Contributions
Alcohol
Tobacco
Entertainment
Pet Care
Tuition
Books/Supplies
Savings
Investments
Dept. Store Cards
Bank Card
Student Loans
Doctor
Dentist
Prescriptions
Credit Cards
Internet

Setting Up the System

The first envelope should be marked as yours. Place your name on it. Highlight it, so you remember to pay yourself first. Put the name and due date of your other bills on their own envelopes too. You can write the amount to pay and/or the balance left. You can decide if you want all of your bills to be categorized into envelopes, or if you want to use the envelope method for only expenses that fluctuate, such as groceries, gas, meals out, entertainment, and holidays. When the bill is due, the money is simply in the envelope.

Some people prefer not to place actual cash into the envelope. In this case, you can just write the amount of money needed and spent, on the envelope to keep track. There are also many services online.

Another modification you can create, is an envelope for your checking account. This would be an additional envelope to move money into, when you use your credit card. This helps because the money is available to pay your credit card bill. If using the envelope system without actual cash, then once your balance is at zero, it's just like as if cash was in the envelope. You would either move cash from another envelope category, or stop spending until more cash is available.

A benefit with the envelope system, is that you can place your receipts into your envelope categories too. This will directly show you where your money was spent, and will help in your money tracking efforts. Tracking your money is important, to make progress with your budget. This system has you prioritizing your wants and needs.

For many using the envelope system as a cash only system works best. It can help you track, save, and not charge if you're disciplined. It's also a great introduction to snowballing debt. For others, they feel they spend more if the cash is there, so the modified system could work well for those preferring to use debit cards or checking. Regardless of which you opt to try or what categories you plan to organize, the envelope method is a wonderful organizational tool that is easy to start and maintain.