Budgeting with Envelopes

My husband grew up in a home where all the money budgeted for the month was withdrawn from the bank at the beginning of the month and then divided into envelopes that represented budgeted categories. My in-laws are some of the thriftiest folks around; I really look up to them. My grandparents use a similar system. A few years ago, it became necessary for my family to tighten up the purse strings, and operating mostly with cash from envelopes really appealed to us. We have budgeted in this way ever since.

This is a system that we have really liked. It gives us a sense of control over our money; we can visualize what we have left to spend for the rest of the month at any given time. It reigns in our unnecessary spending and provides checks and balances where there used to be none.

My in-laws use their cash budget envelopes for almost every category: car expenses, clothing, gas, gifts, groceries, house insurance, household items, license plates, medical bills, taxes, vacation, individual spending money, child sponsorship, and even one for the dog. They keep a binder with sturdy envelopes attached to the rings. At the beginning of the year, they figure up what the yearly expense will be in each category, divide each one by the twelve months, and then put that amount of money in the individual envelope each month.

We are not quite so sophisticated yet at my house! We still use our debit card for gas and for unexpected expenses ā€” although we still have individual budget areas, even for non-cash categories. When we began, we had a grocery envelope, an entertainment envelope, an eating out envelope, and individual spending money. I used to keep a little cash from each category in my wallet; I paper-clipped a label to each amount and kept track of it that way. That system worked well for us. We noticed a huge difference in the areas of grocery shopping and eating out. When we ran out of eating out money, we just had to stop eating out for the rest of the month!


More recently our income has gone down significantly, and we have adjusted our budget accordingly. We now have two envelopes: groceries and miscellaneous. Groceries work like they had been working ā€” we grocery shop within our allotted budget and we don’t go back to the store in a given month if we run out of cash. Our miscellaneous money is around at the beginning of the month in order to cover unexpected expenses that may arise. If, by the end of the month, we still have some cash left then we can use it on entertainment or eating out. Most months that is the case, and it is a real treat!

Moving to a cash budget was a big step for us, but we have found it to be a good discipline. It keeps us on track. Someday it will also be a good, concrete tool to help us teach our kids about being frugal and living simply ā€” two of our deeply held values.

Moms Living Thrifty Disclosure


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