How to Successfully Start the Budget Envelope System and Save Big
The Budget Envelope System helps you control spending by using cash-filled envelopes for different categories. It’s a simple way to avoid debt and save more. Ready to take charge of your money?
SAVING MONEY
Why Budgeting Matters
Planning your monthly finances in advance can be a great help in making your salary last and saving for bigger goals. These can include things like a vacation, a car, or a new piece of furniture for your home. It can also help you pay off debts or simply give you an overview of how much money you're spending and on what.
Especially with many subscriptions and card payments, it's easy to lose track of your current financial situation and spend too much. You don’t see the money physically, so you have no real sense of how much you're actually spending.
To get your monthly finances under control and gain a good overview, the envelope system is a great idea.
What Is the Budget Envelope System?
With this method, you divide your monthly budget into different categories (like groceries, gas, medicine…). Each category gets an envelope containing a specific amount of cash—your monthly budget for that category.
This way, you can visually track your money and see how much you've already spent and how much remains until the end of the month. You'll have your money under control and become very aware of your expenses.
Before You Start: Get Prepared
In the beginning, you should get an overview of your monthly expenses. It's best to write down all your expenses carefully for one month. Don’t forget regular expenses such as monthly subscriptions or rent.
Another option is to look through your bank account for your monthly expenses. Both methods can help you get closer to understanding your total spending and the categories that are relevant for you and your daily life.
Necessary Reserves
An emergency fund, savings goals, and debt repayment must not be forgotten when calculating your total monthly budget. The emergency fund is for unforeseen expenses, such as a washing machine repair. To be prepared for such situations, it's wise to set aside money for this every month.
Set goals you want to save for and define an amount that fits your income and expenses, which you want to put aside monthly for that purpose. Savings goals are also highly motivating to stick to the planned budget.
Monthly debt repayment, of course, must be considered from the outset and cannot be limited in the same way as other categories might be.
Step-by-Step Guide
1. Set your monthly budget
After you’ve analyzed your expenses in detail for one month, you can set a total budget for the month.
2. Choose spending categories
Based on your monthly expenses, you can decide on your personal categories. The categories can vary from person to person depending on daily routine, hobbies, and family situation. Here are a few examples:
rent
transportation
groceries & household
toiletries
entertainment
gifts
Start with fewer categories to keep the system simple. Once you feel more confident, you can slowly add more categories.
3. Assign a cash amount to each category
Now, each category receives a monthly budget. Your monthly expenses will help you determine this amount realistically.
4. Prepare Envelopes
The next step is to prepare the envelopes. You can decide whether to use ready-made envelopes, decorate them, or create and personalize them completely from scratch.
Each envelope should have a clearly legible title so that there’s no doubt later about what it’s meant for. If you like, you can also write the monthly budget for the respective category on the back.
5. Withdraw cash and fill the envelopes
Once you’ve received your salary, you can withdraw the relevant amounts in cash and place the respective budget for each category into the corresponding envelope.
6. Spend only from the designated envelopes
Step 6 is the implementation of the method. When shopping, you may only spend the money from the envelopes. Be consistent and don’t spend more money on a category if the cash in the envelope is already gone.
7. Analyze your progress
At the end of each month, you can check whether you stuck to your budget. Which categories were easier for you? Which ones were more difficult? If a category’s budget is consistently tight for several months, it might be necessary to adjust it.
What to Do When an Envelope Is Empty
If an envelope is empty before the end of the month, the wisest decision is to leave it that way and not spend any more in that category. Borrowing money from other categories is not an option either. If you borrow from another category once, it likely won’t be the last time.
The longer you use this method to save, the easier saving and spending will become. Each month, you can start fresh and try again to reach your goals.
How to Handle Leftover Money
If you have leftover money in a category, I have a few suggestions for what you can do with it. You can keep it in the category as extra money for the next month. Expenses are usually not consistent and can fluctuate.
Another option is to save the money, bringing you closer to your savings goals even faster.
You could also use the leftover money as a reward for yourself. This can motivate you to spend as little as possible throughout the month.
Digital Alternatives
Maybe you don’t feel comfortable carrying so much cash with you all the time. Some stores also don’t accept cash. In that case, a digital alternative could be an option for you. Apps like GoodBudget or Rocket Money can offer a similar system on a digital level. Of course, both the analog and digital methods come with various pros and cons. You just need to decide what works best for your situation.
Conclusion
Now you’ve gained an overview of a very simple saving method, and it’s up to you to get started! I can only encourage you to set up the system for yourself and start saving as soon as possible. The earlier you begin, the more you’ll save! It might seem difficult to stick with it at first, but the longer you do it, the more success you’ll have, and you’ll get to know your strengths and weaknesses.
