Envelope Budgeting: How to Manage Your Budget and Save Money

Are you having a hard time budgeting? Regardless of the amount you are receiving each month, it is essential to manage your budget. There are different ways of managing your finances and budgeting. One method is through envelope budgeting, which the GuardianWealth budget planner app uses to help you better manage and keep track of your expenses. Don’t worry, you don’t need to buy physical envelopes — GuardianWealth has created an online version. As the name implies, you will separate cash in various envelopes and allocate money to each one. You will use the funds inside the envelopes for paying regular bills, utilities, mortgages, and other expenses.
 

Envelope Budgeting – How does it work?

You are accountable for maintaining the expenses of you and your family. So if you’re running out of cash for your expenses, you might not be managing your budget properly.

Envelope budgeting helps you control spending your cash to avoid running out of money for specific expenses. This method will also help you divide your actual income into different categories of expenses. And then use only what is inside the envelope to meet those financial needs.

If you want to try this method of budgeting, the first thing to do is understand your variable vs. fixed expenses.
Fixed expenses are the ones you must pay each month. Fixed expenses include monthly bills for utilities, insurance, and mortgages. You have very limited control over fixed expenses.

Variable expenses are expenses you can control on a monthly basis such as groceries, eating out, and shopping.
 

How to Start Envelope Budgeting

1. Assess your existing expenses

The first thing to do if you want to start envelope budgeting is to assess your present expenses. This means reviewing how much you spend, and on what. Identify the fixed costs and the variable ones. Regularly tracking your expenses will make the process easier.

Determine your net income after paying your obligations like taxes. Then deduct the fixed expenses from that amount. The next step is to determine the actual amount of money you need to save in each envelope category.

2. Create categories

After evaluating your current expenses, the next step is to create categories and decide how much to put aside for each one. Common expenses include household items, groceries, clothing, gas, dining out, allowances, savings, insurances, and taxes.

To determine the right amount for each category, a good place to start is your historical expenses.

GuardianWealth’s personal finance app makes this process simple and quick, as it can automatically categorize your expenses and export them into a budget planner tool. This will help you decide where to cut costs going forward.

3. Label each envelope and set a budget

Label the envelopes and write out the monthly budget for each one. This will help you know how much to spend on each category every month. The good thing about setting a budget is that you will know if you’re overspending. GuardianWealth prevents you from overspending by sending you alerts when you have hit 90% of your budget on a category.

4. Stick with it

Try as much as possible to restrict your spending to your budget, modifying your spending habits if you find yourself overspending in any area. You can change or adjust your budget according to your expenses each cycle. However, you may have an unexpected expense which could torpedo your budget. This is why it’s important to have an emergency fund. If there is extra money left after the month ends, start saving in an emergency fund. A good rule to follow in budgeting is the 50-30-20 rule.

Benefits of envelope budgeting

The envelope budgeting method is ideal for excessive spenders and budgeting beginners. It also keeps you on track with how you save and spend your money. The envelope budgeting method is ideal to manage personal finances.

If you want to have a smooth budgeting process, try the envelope method. It also works efficiently without overspending your cash. Using this method of budgeting offers many benefits:

• You spend the money inside the envelope for a specific purpose. You will also know exactly where the money goes each month. It also means you can compute your expenses before spending your money.
• It also prevents overspending and helps you stick to your budget, as you know the amount allocated for each specific category. And It also discourages you from spending that money on things not included in the category.
• You’ll be less prone to misspend your money using the envelope budgeting. Because you can see where your money goes, you can stop buying things you don’t really need.
• You can increase your monthly savings because you’re working toward a mission, which helps you stay focused and cut out unnecessary spending.
• Envelope budgeting can be used to avoid incurring more debt and help you find opportunities to save more. You can also limit your expenses and stop spending when there is no available cash on hand.
• Using this method of budgeting encourages self-discipline. You must employ discipline even when spending money. It is your responsibility to keep your finances on track to ensure you’re not wasting your hard-earned money. It will also improve your budgeting skills.
• Practicing the envelope method is another way of saving. You can also use the excess money from the envelopes to build an emergency fund.
• Envelope budgeting teaches you to spend on the most important things. You also need to think carefully before making a purchase. Thus, you’ll likely spend less and avoid wasting your money.
• With envelope budgeting you can keep better tabs of your financial obligations and pay them in advance.

Other tips for using the envelope budgeting method include:

1. Put more cash in the category that needs more funds

You may think of allotting an envelope to buying clothes, for example. But if after a few months you never use the cash from this envelope, transfer it to other categories. Put more funds into the category that requires weekly purchases like household goods.

2. Budget according to your paycheck

Schedule your budget based on how often you receive your salary.

3. Leverage your lists

To protect your funds, make a plan or write a list of things you need before shopping. This practice will help you estimate the cost of the trip and determine if you have enough money in the envelope. Stick to your budget to avoid running out of money.

4. Re-evaluate the budget regularly

When using the envelope budgeting method, it is essential to re-evaluate the budget regularly. You will notice your spending for a certain category changes every month. If you think that the allocated amount is more than enough for a category, try to adjust it. Put the excess funds aside for other financial goals. You may also opt to create new categories.

5. Use a budget planner app

As mentioned above, the envelope method makes tracking spending a lot easier. But it requires discipline and some compromises. Stick to your budget for each category. The GuardianWealth personal finance app uses the envelope method to help you budget. You can also view how your spending has improved over time and celebrate your wins.

Conclusion

The best thing about envelope budgeting is that it improves the spending habits of an individual. This method of budgeting is another way to achieve your savings goal and keep on track with your budget.

If you notice you’re struggling financially, the envelope budgeting system can save you. The traditional envelope method of using physical envelopes and only spending cash may make this process seem cumbersome. However, with the GuardianWealth budget planner, this process is simple, and it will change the way you manage your money.

The envelope budgeting method will teach you to be financially responsible. Knowing that there is a finite amount of cash in the envelope, you will only spend money as needed. This way you can avoid running out of money for you and your family’s needs.