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Controlling Your Debt with Envelope Budgeting

Updated on June 30, 2016

Envelope Budgeting Online

What is Envelope Budgeting?

Before we delve into how envelope budgeting works, we need to have a working definition of what it is all about. Envelope budgeting is an innovative budgeting practice which employs the simple use of labeled envelopes to store the allotted sum for a specific expense. Each budget or spending category is written on individual envelopes and the money allotted to that category is placed in the designated envelope. This approach to budgeting is meant to help people not exceed their budget.

How Envelope Budgeting Works

This system follows a basic set of guidelines:

  1. Make a budget. Categorize your spending commitments and set the spending limit for each category.
  2. Record each major budget category on separate envelopes. If you are not paid on a monthly basis divide your monthly expenses according to your pay periods, for example, weekly or fortnightly, then record the amount on each envelope. For example; if your monthly gas bill is $160 and you are paid on a weekly basis, divide the $160 by 4. The amount to place in the gas envelope each week would be $40.
  3. At the end of the month, fortnight or week, whatever is your payday period, place the budgeted amount in the designated envelope.
  4. Only spend from envelopes when needed. Whether you intend to go shopping or to pay a bill, ensure you take money from the designated envelope.
  5. On your next payday you could choose to remove any surplus funds left in any of the envelopes and deposit into your savings account, transfer to another envelope or carry it over into your next payday period.
  6. At each payday start at step 3.
  7. If you use debit or credit cards instead of cash, you could make your purchases then place the receipts in the designated envelope. Keep an accurate record of starting balances for each payday then subtract the sum you spent using your card.

Advantages of Envelop Budgeting

The most notable advantage of envelope budgeting is that it forces you to stay within your budgeted spending limits. Once the funds from an envelope has been exhausted, there is no more to spend and you are forced to be disciplined enough not to take money from another envelope, as you will then become short of cash to cover another expense.

Envelope budgeting prevents us from playing ‘catch up’ to our expenses by having to track our actions after the fact. It allows us instead to allocate and make a commitment to our expenses before we get paid, and then force us to adhere to the spending limitations.

There are various forms of envelope banking. Some people find it annoying to deal with the envelopes and may elect to use Ziploc bags or even coupon organizers. There is an even more convenient way of doing your envelope banking online. It involves the utilization of online envelope budgeting software.

Envelop Budgeting with Financial Software

If you receive payments through direct deposit, you can do envelope budgeting online by utilizing the personal finance or budgeting software features which are available for such transactions. Envelope budgeting with online personal financing or budgeting software programs requires that the user set up their paycheck in the system. You will then create envelopes and put in your spending allocations. Link your personal financing or budgeting software program account to your bank account, as well as your debit and/or credit card accounts.

The way the system operates is to fill up your envelopes with the sum you indicate each time your check is deposited. In the same manner, the funds in the envelopes decrease when you spend money from them as the system deducts these expended amounts. You have the option to make manual adjustments as the need arises.

The personal financing or budgeting software programs are easy to use and understand, as they often use virtual envelopes and graphics to indicate each budget category. You can observe your spending activity and check on your balances for each category. Another feature of the personal financing or budgeting software program is that if you use a credit card, the software will transfer the expenses to another envelope where the cash is held until the credit card bill is paid.

I hope you now have a better idea of how envelope budgeting works, and please remember, you can always do a research to see what are your best options for using personal financing or budgeting software programs most suitable for your online envelope budgeting.


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    • ohic32 profile imageAUTHOR

      Althea Reader 

      7 years ago from Jamaica

      And thanks to you for stopping by srossjul.

    • srossjul profile image

      Julie S Ross 

      7 years ago from Irvine, California

      Nice! Thanks

    • ohic32 profile imageAUTHOR

      Althea Reader 

      7 years ago from Jamaica

      It is good to know you found this informative and you are welcome.

    • Esmeowl12 profile image

      Cindy A Johnson 

      7 years ago from Sevierville, TN

      This was a very informative hub. I've always wondered how envelope budgeting worked. Thanks for sharing.

    • ohic32 profile imageAUTHOR

      Althea Reader 

      7 years ago from Jamaica

      Hi jawwadsaif. It is not easy but comes with practice and self-discipline. Bearing in mind that many of us can be so terrible at handling our finances sometimes. It is an effective method though and one I feel people should give a try.

      It might become addictive :).

    • jawwadsaif profile image


      7 years ago

      It is a good idea. But do you think it is easy to practice each and everyday? I have no doubt that it will work but it seems a little bit tedious. Thanks for sharing and i hope to see some more ideas to maintain the budget. An up and interesting...


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