The envelop budgeting system is a way to budget your money and spending. It tracks exactly how much money you have in each budget category and visually helps budget stay on track. Basically it is dividing your income into categories based on your spending needs. These may include mortgage or rent, grocery, utility bills, et. You need to assign how much you’re going to spend on each category basing it in your budget and family needs and place the amount in the envelop. Every time you need to spend on something, you just get funds from the envelop with the category it falls into.
Below is an easy step by step guide to help you understand how the envelop budgeting system and how it works:
Step 1 Create categories and cash budget
Before buying or creating your envelop system. You need to grab a notepad and list all the spending categories you have and its limits. This includes: Rent, Groceries, Commute/Gas, Electricity, Water, and other bills. List all the categories and how much budget you need to set aside for each. The total amount for the spending categories must not exceed your monthly income.
Step 2 Label your envelops
You can now grab your envelops and label these according to your spending categories. On the envelops, you can also add a table or a spending list where you can jot down any transactions you made. This is one way to keep track on any spending you made in that category.
Step 3 Separate funds
Using the cash budget as your guide, you can separate the cash and place the amount accordingly into each envelop. For example you have a budget of 5,000PHP for groceries, 2,000PHP for electricity and 500PHP for water, you need to put each amount to their specifically labelled envelops.
Step 4 Spend from the envelops
This is where the hard part starts.
For every purchase or expense made, you need to only get money from the envelop category that covers the expense. So when you do groceries for hygiene products, get and spend money from the Grocery envelop. You do not have to spend all the cash inside the envelop
Step 5 Set aside extra or remaining money
If at the end of each month you find that you still have funds remaining in the envelop, you can set aside the remaining cash and forced save it to your saving/s account. That way you won’t “accidentally” spend the money but also increase your savings as well.