Envelope Budget System

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Several personal financial sites suggest using an envelope system to budget your expenses. The way it works is you get normal postal envelope and assign it a category in your budget. Thus, you could have an envelope for groceries, one for dinning out, and one for clothes. Next, decide how much money you’re going to budget to that category and put that amount in the envelope in CASH. Once the money is gone for that category, it means no more spending on that category.

The idea behind the envelop system is that there’s something psychological about spending cash as opposed to using debit or credit cards. It hurts more to part with cash than it does to swipe a piece of plastic.

Here’s an article on the envelop system.

Mrs. FLS and I are going to do this with our groceries and dinning out category. These are the places where we tend to lose discipline when using debit cards. We’ll see how it works. Has anybody had success with this system?

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2 Comments

1. River Rascal on 06.11.2006 at 06:26 (Reply)

   My wife and I have done this before and it has worked very well. The only difficulty we had was remebering to get cash every week for the envelpoes (we did it weekly). Our week ended on Sunday and come Monday we’d have empty envelopes and no time to go to the bank. So we’d debit card our way through until Wednesday and then decide it was too late to start the envelopes for that week. So, plan ahead. Sounds simple, I know, but it’s easy to forget

2. The Frugal Law Student on 06.11.2006 at 15:33 (Reply)

   Thanks for sharing your experience river rascal. I can see how this is going to take some planning.

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