“The Envelope System is an excellent way of learning how to stop using credit and debit cards, for the most part.”
— SAID, BOSS OF MY MONEY!
There are different extremes to Envelope System Budgeting. Some people only use cash and envelope system to pay all of their bills. Others will use direct debit, standing order and debit cards to only pay for specific items. These could be rent, mortgage, council tax, utility and phone bills etc. They then use cash for food shopping, clothing, car servicing, fun, children miscellaneous etc. Whichever method you choose, the key is that you make it easy and it works for you. It may also be a good idea to try different budgeting methods. Whether it’s a budgeting app, spreadsheet, envelope system or pen, paper and calculator, try until you find what’s right for you. I have personally used the envelope system when going on holiday so I don’t overspend. What’s in the envelope is what we use. I will still have my bank card but will only use that in an emergency. Particularly flight delays, emergencies or medical treatment.
Let's get to it. There are three fundamental principles to Envelope System Budgeting. The first principle of an Envelope System is assigning a job to every penny. The second principle is that you assign an envelope to every bill but you can choose to pay by cash. Especially for small expenses -fill those envelopes with money. For the larger expenses you would pay via direct debit, standing order or using your bank card. The third is that you must keep the envelopes in a safe and secure place, preferably a safe fire storage.
“Envelope budgeting is a brilliant way for people who want to physically see what they spend on and prefer using cash”.
— SAID, BOSS OF MY MONEY!
10 steps to Happy Envelope Budgeting
If you are short on covering you priority bills and at least minimum payments on your debts, then you should think about cutting down on expenses. Increase your income by getting a second job, working overtime or selling things you don’t use. You should also consider getting professional help, contact the citizens advice bureau and see if you are entitled to any social welfare.
The envelope system causes you to be a lot more aware of your spending. When you use cash, there is a physical transaction that happens with your money and the item you are purchasing. When you use a bank card or pay online- you don't feel that physical trade as much. Particularly because you just tap a card and don’t really experience that transaction happening, consequently spending more.
I want to use £200 for food shopping this month. I will put £200 in an envelope and title it Food. I get paid and add £200 into this envelope. I can only use this money for food and if I have money left over by the end of that pay period- I will add it to my next month's food shopping. I may even decide to reduce the budget if each month I am not spending up to that amount on food shopping. Let’s say I have £30 left each month from my food budget. I will either reduce my food budget to £170 and put the £30 towards debts, savings. I could also put it towards other bills where I may not be assigning enough to. These could be non priority bills such as car servicing, clothing etc.