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I have seen a little bit about the "Envelope System" for spending, and while I think I have the rough idea of it, how does it work in detail.

I know there is http://www.mvelopes.com/, but this site will neither tell me how it works nor explain how much they want. (I won't sign up with them at all until I know how much money they want.)

I want to know generally if it is a system to help you learn to budget, or if it is more than that. I would like to know specifically what you are supposed to do.

Do I put actual cash in an envelope? Do I pay only cash for things? What about interest from keeping money in a bank? What about having my house robbed? How does it differ from an spreadsheet or mint.com in tracking my money?

Does anybody do it? Is it as simple as this page makes it seem?

flag	asked Dec 22 at 22:20 MrChrister 3,047●2●11

Jesse · Accepted Answer · 2009-12-24 04:07:33Z UTC

Basically the idea is you put the exact amount of cash into each envelope and set those aside for a specific purpose. Then when you go to accomplish that specific purpose such as grocery shopping or whatever, you take the corresponding envelope and use only the money that is inside. It is sort of a way to train yourself to follow budgets very strictly. Many people stand by this method and it really is as simple as the website you linked to. As far as tracking, this method really doesn't track anything aside from what you note down about where the money is going.

Others have moved on to using ING sub accounts to do the same thing but in a digital form.

Nathon HouseholdBudgetNerd.com · Answer 2 · 2010-01-29 15:50:27Z UTC

@MrChrister,

Budgeting is really about planning your spending. Many programs and most advice will tell you that budgeting is tracking your expenses. That's only the first part.

Track your expenses for about a month to figure out what you plan to spend in the future.

Your budget is then just a list of things you're going to buy or pay for with the money you have at the moment. I recommend creating a budget every time you get some money, keeping an eye out for future expenses you may need to save for.

The envelopes are for those expense that you are going to use cash for. The envelopes make you plan to spend a specific amount of money, the money you put in them and no more. Envelopes protect you from overspending.

I use "envelopes", that is, paperclips or sticky notes or different sections of my wallet, to organize my cash.

I use cash for things I'm going to buy in person: gasoline, groceries, eating out, the movies, home improvement stuff, buying birthday presents. These are my "envelope" expenses.

I use one check a month to pay rent. I use my online banking to pay most of my bills automatically (like school loan and Netflix). And I use the actual websites of those companies who I want to pay manually (like utilities, b/c those change every month).

Does that help?

Nathon HouseholdBudgetNerd.com Family Budgets for Both of Us

How does the envelope budgeting system work?

2 Answers