Frugal Tip

5 Steps to Saving Money Using Just Envelopes

If you’re struggling to stick to your budget, you might want to try using the envelope budget method. This is a simple system that will make sure you don’t spend more than you’ve allocated for a given category. At the end of the month, you might even have enough to treat yourself to a special gift!

If that sounds like a system you would benefit from, read on for my step by step guide on how to use the envelope budget method to save money.

Step 1: Choose Your Target Spending Category

I recommend choosing the category where you currently spend the most money every month. By targeting the biggest spending area, your potential for saving money is also greatest.

My biggest area of spending is food, but I’ll actually look at these as two separate categories: groceries and dining out.

Step 2: Determine Your Budget

Now that I have my two categories that I’ll be targeting, I need to come up with a reasonable amount to allow for each category. This number will be a personal choice based on dietary needs, where you live, household size, and how much you will realistically cook at home vs. dine out.

It’s helpful to look at historical spending over the last three months to get an idea of how much you naturally spent without tracking and reduce it gradually from there.

Similarly to a diet, you can’t expect to make drastic changes and expect them to stick longterm, so don’t cut your spending allowance more than 25-30% from what you are currently spending.

Step 3: Fill Your Envelope

Now that you have your budgets, go to the bank or ATM and withdraw that amount in cash. If you get paid twice a month, you can withdraw half of your monthly budget now and withdraw the second half after your next paycheck.

Place the cash into an envelope marked with the category of spending. This will be your “wallet” for any spending in that category for the month.


Step 4: Shop Responsibly and Save!

Whenever you go shopping in your target category (in my case, groceries or dining out), only use the cash in that envelope for your purchases.

Once the cash runs out, that’s it for the month, so measure your purchases wisely.

Do not use a credit or debit card! I’ve always said that it’s silly to buy in cash when I could be getting points back on my credit card purchases. While this is absolutely true, the rewards you’re getting are probably not outweighing the extra money you spend on frivolous things when you’re mindlessly swiping the card.

Until you feel confident that your spending is where it should be, forgo those points. Saving money is going to be more valuable than the nominal rewards you get from the credit card companies, trust me!

Step 5: Reward Yourself for a Good Month

When you get to the end of the month, you will hopefully have some cash left in your envelope. This surplus can be rolled over to the next month’s budget, deposited back into savings, or used to treat yourself for a month well done.

If it’s been a difficult four weeks of restraining yourself from making unnecessary purchases, it may encourage you to keep going if you reward yourself with what’s left.

As for myself, my surplus will be going to a meal out at my favorite restaurant!

What are your tried-and-true ways for sticking to a budget? Have you tried the envelope budget method before? Let me know in the comments!

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