A budget can help you be more mindful of—💯and deliberate with—your spending.

The envelope budgeting system, for example, uses a cash-based approach. With this method, you divide your money into separate envelopes that represent your key spending categories. (They can be virtual envelopes; the approach can be adapted for use with mobile budgeting apps.)

You begin with multiple envelopes, each of which represents a budget category. You then assign a certain amount of 🔯cash to each one, based on how much you anticipate spending in that category for the month.

Once an envelope is empty, you can't spend any more money in that category until your new budget period begins.

Here are the steps for setting it up.

Step 1: Add Up Your Monthly Income

Before you can begin using the⛄ envelope method to budget, you need to know your net (after-tax) monthly income. Your income sources may include:

• Paychecks from a regular job
• Earnings from a part-time job, second job, or side hustle
• Investment income
• Alimony or child support payments
• Government benefits

You may also include any one-time sources of income that you expect to receive for the month, such as a 澳洲幸运5官方开奖结果体彩网:tax refund.

Step 2: Set Budget Categories

The next step with envelope budgeting is choosing which categorꦯies to put in your budgꦺet. Focus on the expenses that can vary according to your decisions from day to day. They include:

• Groceries
• Transportation
• Clothing
• Dining out
• Entertainment
• Personal care
• Pet care
• Household items
• Gifts

Expenses for housing, utilities, insurance, and debt repayment (like student loans) are typically ℱnot included in envelope budgeting because they represent the fixed part of your budget: that is, they're expenses that are non-negotiable and don’t change much from month to month. You probably pay these bills electronically or by check.

Your cash envelopes should represent the money that is left over after these necessities are taken care of.

Step 3: Assign Budget Amounts to Each Envelope

Once you’ve determined your available spending money and chosen y🅰our budget categories, you’ll need to decide how much money to🅷 allocate to each.

Here’s a few examples of what this might look like, 💜based on average monthly consumer expenditures for 2023:

• Groceries—$504
• Gasoline—$204
• Dining Out—$328
• Personal Care—$79

Divide up your cash, stuff the envelopes, and jot down the amount ꩲof money each envelope contains on the backs of the envelopes.

Step 4: Spend the Cash in Each Envelope

Once cash has been assigned to each envelope, put your budget to work𒀰 by spending it 🍎to cover expenses.

Each time that you take cash from the envelope, subtract the amount from your total. For example, if you start off with $100 in your gas envelope and pay $25 at the pump, jot that down on the back of the envelope. This allows you to keep a running tab of how much you have left to s🌳pend in each envelope.

The key to making the envelope budgeting system work is spending only the money that you have on hand. Say you have $504 assigned to your grocery envelope. If that’s your budget amount for the month, then you would be able to spend about $116 per week. (There's 4.33 weeks in a month.)

Once that money is gone, you won’t be able to spend anything else until the new budget month begins. You could take cash from another envelope, but that will le🦹ave you with a shortfall in another budget category.

Using the envelope budgeting system requir🎶es a certain amount o🍎f discipline to avoid overspending.

Pros and Cons of Envelope Budgeting

Understanding what’s good—and potentially not so good—about envelope budgeting can help you decide if it’s right for you.

When deciding whether to use cash envelope budgeting, consider your current spending habits. If you’re already disciplined about tracking your expenses, switching to envelopes𝓡 may not be difficult. Also, consider where you tend to spend the m🧜ost and whether paying in cash instead of using a debit or credit card makes sense.

For example, you could pay with cash when dining out. However, if you were to use a dining rewards credit card instead, you could earn some points or cash back on that expense, which could save you money, assuming that you pay your balance in full each month to avoid interest charges.

The Bottom Line

The envelope budgeting system is a cash-oriented approach to budgeting, although you can use vi♏rtual envelopes instead of real ones.

Its strength is its simplicity. Over time, you may find it makes you a smarter consumer. You'll be fully aware of where your money is going from day to day, and better able to stay within your income.