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Budgeting Tips Envelope Budgeting

Updated on June 16, 2011

Envelope budgeting is the simplest of all the budgeting tips and using it will enable you to keep track of your personal finances and potentially save money.

Even though envelope budgeting is a simple way to budget your personal finances it is still incredibly effective.

Further, envelope budgeting has been used successfully for generations so its proven its worth.

We stopped using these simple family budgeting methods when we were able to have out money paid directly into our bank accounts and more latterly, withdraw money using ATM machines, and other electronic methods of accessing out money. The incredibly easy access coupled with easy credit such as credit card accounts has meant that its been very easy to lose touch with the reality of money. Its complicated our personal finance arrangements and helped those who aren't so disciplined get into serious debt problems.

However, here is an easy peasy solution to money handling and that's envelope budgeting.

Use One Envelope for Each Spending Category

An Envelope for Every Category

Envelope budgeting will get you back in touch with the reality of money because you will handle cash. There are just five easy steps to implement this method of budgeting your money.

You need to make one category for each major area of spending like rent or mortgage payments, utilities, insurance, supermarket spending, school uniforms, dining out etc. Depending upon how often you get paid or how often the bill has to be paid will determine how you allocate these categories.

For example, if you get paid weekly but your utility bill is paid monthly, allocate a quarter of the monthly power bill to each week.

Ensure you allow some for saving money which you'll want to leave in the bank so it earns you interest.

Shop from the Appropriate Envelope

When you go shopping, you spend from that envelope. If you are going to the supermarket and you have $150 in your envelope then that’s the maximum you can spend on groceries for that particular time period.

Choices when there’s insufficient money

What if you want to buy something and you look into your envelope, but there isn't enough money to complete the purchase? Or, what happens when you have an unexpected bill? In these instances you have three choices:

  1. You choose not to make the purchase
  2. You wait until you have managed to accumulate sufficient money
  3. You take the money from another envelope to made the purchase

Try it. You will be surprised just how easy it is to implement and use the envelope form of budgeting your personal finances.

And finally.......

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