Analyzing financial data, how to budgetI was at my wits end. Money was slipping through my fingers at such a fast rate and there was no way to know where it had gone. My finances were a mess and getting messier. The only good news was that I had been smart enough not to get into credit card debt. But believe me, that was the only good news. That is when my mom taught me how to budget using the envelop system.

I had never heard about the envelope system, but apparently it’s been around for decades. I was more than willing to learn because I realized it was critical that I learn how to budget and to understand the importance of personal finance. Here is how the envelope budgeting system works.

How System Works?

You have to sit down and figure out your exact income. This is net income, not the gross income, so you know exactly what you have available to spend for the month. Then make a list of all your monthly bills. Take envelopes and write the name of the monthly bill on the front and how much you need to put toward that bill from each paycheck. For example, your grocery spending for one month is $400. You get paid every week or four times per month. Take $100 cash every week from your paycheck and put it in the grocery envelope. When the money is gone from the envelope, you are done buying groceries for the week.

Another Example

Here is another example of how to use the envelope budget for periodic expenditures, in other words, spending that may not be on a normal basis. A good example of a periodic expense is car maintenance. You may go months without having a car repair, and suddenly you have $250 dollar repair bill. The way to plan for this is to determine how much you spend a year in car repairs. Divide that amount by 12. This is the amount you should budget for on a monthly basis to ensure that you are saving for car repairs.

Why you should learn how to budget?

One of the main reasons you should learn how to budget with the envelope system is because it will get you working on a cash basis. I know that seems odd in this day and age, what with all the electronic transactions going on around the world at the rate of millions per second. However, you will find that when you have the cash right in front of you, you will know exactly what you have left to spend. No more guessing or estimating, because that is when you can really run into problems.

Once I learned and implemented how to budget with the envelope system, my money troubles went away. Did I suddenly become rich? Of course not, but I was able to have money for all my bills every month with no more stress. It really is amazing how much you can save when you are using a budgeting system.

You don’t need any fancy PC or Mac personal finance software. I guarantee that if you are in financial difficulty, you will soon be able to set things right if you learn how to budget with an envelope system. Once you get your budgeting system learned and working well, you should considering learning how to invest as well.

If you liked this post, our author will be glad to receive a cup of coffee from you.

Share and Enjoy:

Did you like that post? You will love these.