Envelope Budgeting: A Simple Tool for Financial Freedom

Envelope Budgeting: A Simple Tool for Financial Freedom

When it comes to achieving financial freedom, there are many tools and strategies you can use. One of the most effective and simple is envelope budgeting.

In this article, we’ll explore what envelope budgeting is, why you should use it, and how to create and use an envelope budget to achieve your financial goals.

What is Envelope Budgeting?

Envelope budgeting is a simple system for managing your money. It involves dividing your income into different categories or envelopes and allocating a specific amount of money to each category.

You can use envelopes, jars, or digital apps to hold your money, but the idea is to physically separate your money to help you avoid overspending.

Why Use Envelope Budgeting?

There are a number of benefits of using envelope budgeting. First, it can help reign in your spending and avoid overspending. When you only have a certain amount of money in each envelope, you’re less likely to spend more than you should.

Second, envelope budgeting helps you prioritise spending. You can allocate more money to the categories that are most important to you, such as groceries, rent, or debt repayment.

Finally, and most exciting is it can help you save money and use that money for something special like a holiday or help you reduce any debts you have. By being mindful of your spending, you can find ways to cut back and save more each month.

How Does Envelope Budgeting Work?

To get started with envelope budgeting, you need to determine your income and expenses. Once you know how much money you have coming in and going out each month, you can assign categories to your expenses and determine how much money to allocate to each category.

You can then physically separate your money into envelopes, jars, or digital apps to help you stay on track.

The Benefits of Envelope Budgeting

Envelope budgeting offers several benefits, including:

  • Regulate spending
  • Prioritise your spending
  • Save money
  • Manage Money Better

The Drawbacks of Envelope Budgeting

While envelope budgeting is a great tool, there are some drawbacks to consider. 

First, it can be time-consuming to create and manage envelopes for all your expenses. 

Second, it may not work well for people who have irregular income or expenses. 

Finally, it may not be as effective for people who prefer digital or automatic budgeting tools.

How to Create an Envelope Budget

Creating an envelope budget is easy. Here’s how to do it step-by-step:

Step 1: Determine Your Income
The first step is to determine how much money you have coming in each month. This includes your salary, any side hustles, or any other sources of income.

Step 2: List All Your Expenses
The second step is to make a list of all your expenses. This includes your rent or mortgage, utilities, groceries, transportation, entertainment, and any other regular expenses you have.

Step 3: Assign Categories to Your Expenses
Next, assign each expense to a category. For example, your rent or mortgage would be in the “housing” category, while your groceries would be in the “food” category.

Step 4: Determine the Budget Amount for Each Category
Once you have assigned categories to your expenses, determine how much money you want to allocate to each category. This will depend on your income, your financial goals, and your spending priorities.

Step 5: Allocate the Money to Envelopes
Next, allocate the money to physical envelopes, jars, or digital apps. Label each envelope with the name of the category and the amount of money allocated to it.

Step 6: Track Your Spending
Finally, track your spending to make sure you’re staying within your budget. Whenever you make a purchase, deduct the amount from the appropriate envelope. This will help you stay on track and avoid overspending.

Tips to Make Envelope Budgeting Work

To make envelope budgeting work for you, consider these tips:

  • Start with a few categories and add more as you get comfortable.
  • Review your budget regularly to make sure it’s still working for you.
  • Be flexible and adjust your budget as needed.
  • Consider using a combination of physical envelopes and digital tools.
  • Involve your family or partner in the budgeting process to help them stay on board

Overview Envelope Budgeting

Envelope budgeting is a simple and really effective method for managing your money, reducing debt, saving money and achieving financial freedom. 

That process of physically separating your money into different categories, you can stay on top of your spending, prioritise your expenses, and save more each month. 

Whether you prefer physical envelopes or digital tools, envelope budgeting can help you take control of your finances and achieve your goals.

Envelope Budgeting FAQs

  1. Is envelope budgeting right for everyone?

Envelope budgeting can work well for many people, but it may not be the best fit for everyone. If you have irregular income or expenses, for example, it may be more challenging to manage envelopes for all your expenses.

  1. Can I use envelope budgeting if I prefer digital tools?

Yes, there are several digital envelope budgeting tools you can try. 

  1. Do I need to use physical envelopes for envelope budgeting?

No, you can use jars, digital apps, or any other method that works for you.

  1. How often should I review my envelope budget?

It’s a good idea to review your envelope budget regularly, such as once a month, to make sure it’s still working for you and to make any necessary adjustments.

  1. What are some other budgeting tools I can try?

Other budgeting tools you can try include the 50/30/20 rule, the cash envelope system, 3 Bucket Budget Method and automatic budgeting tools such as IFTTT, which can set automatic savings.

I use two IFTTT I love to use one, is round-up payments which add your change from every purchase into a savings pot in my monzo app.
The other is a penny saver which means on January the 1st I save 1p (Im British) and on the 2nd January, I save 2p, and it continues everyday for the whole year and by the end of the year I have saved £667.95 without even trying. This is a great way to save up for Christmas.

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Hi from the Frugalar team Louise & James, we want to share our passion for frugality and show you what you could achieve from being frugal and gaining financial freedom.