Welcome to week 2 of our Envelope Budgeting System Series! If you missed week 1, you can go back and find it here. Look for links at the bottom of this page when future weeks are published! This system has been working for people for years, who have struggled to stick to a budget but want to find a way to reach their financial goals, or sometimes just get by. We have had this system in place for just two months, but it has already made a big difference in our lives. Over the past couple of months, we have found that there are a few things that have made this system most effective for us. Read on, and then share your own ideas with us!
1. Pay Yourself First
This is huge! We have never been “savers”. It just wasn’t something that we were taught. Don’t get me wrong, I’m sure our parents taught both of us, “You need to save your money” but it was never something that was put into practice. We knew in our heads that it was “important” but never did it. Since last summer, I started saving from each paycheck. My dad made the suggestion to have a small amount of money automatically transferred from my checking to my savings as soon as my paycheck was deposited each week. I’m not sure why I didn’t think of this on my own, but I thought it was a great idea, and so I started saving. I started small, with just $20/week. If this seems like too much, you can always start with $5. The point is to get into the habit of saving money automatically, and then increase it as time goes on, and as your paycheck grows (raises, bonuses, overtime, etc). I want to be honest, so we have not been great at KEEPING the money in there, and we were hit hard with taxes this year, so that money is not what it would’ve been if we had been using this system earlier, but it is a start. Having multiple savings account (See future post) has also helped with making sure the actual emergency fund doesn’t get touched anymore. So, first things first, before you take any money out, put something away into a savings account (or multiple savings accounts). Then, I always like to double check to make sure that all my calculations are correct and that I am leaving enough in my account to pay for all automatic bills that will come out before the next paycheck. After that, take out whatever is needed to fill your envelopes, and transfer anything extra into your savings account.
2. Stick To The Budget
This was SO difficult the first couple of weeks, but you have to stick to the money that is in each envelope. We got lucky and my husband had worked some overtime the previous week, so we had a small buffer, but you really shouldn’t be paying for ANYTHING out of your checking account or credit cards if you are implementing this system. In retrospect, the money we used as a buffer should’ve gone straight into savings, but it was a lazy way for us to ease into this process. Our first two weeks were far from perfect, but we are getting better each week, and even had money left over in several envelopes this time around! It is also important to not borrow from different envelopes. You are supposed to be creating a habit of sticking to a budget, so borrowing is actually counter-productive.
3. Reward Yourself
This is really a personal thing, but you really should find a way to reward yourself for staying under budget. If you have money leftover in your envelopes when the next pay day hits, take that money and put it into a special rewards envelope, or savings account (see my post, “How To Effectively Use Multiple Savings Accounts”) to reward yourself for a job well done. For us, we chose to only take money out of certain envelopes when we first started (food, gas, entertainment, miscellaneous) to reward ourselves. As we started making this system a lifestyle change, and started using multiple savings accounts (LINK), we transitioned some of our envelopes (doctors & clothing) into savings accounts instead. This allowed us to take better control of these categories, and to earn interest on what isn’t used, as well as saving up for larger purchases/situations. The point of rewarding yourself at the end of each pay period is to encourage you to stick with the budget, and even come in under budget. Of course there will be weeks, maybe even months, when this isn’t possible, but it should get easier with each passing week.
Have you started using the envelope budgeting system yet? What have you found to be the most important points of this system? Please share below in the comments!