How to Make the Envelope System Work in the Modern World

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One of the many budgeting styles to help you reach your financial goals is the Envelope System, which according to Financial Expert and Author, Dave Ramsay, is a method that uses cash for different categories of your budget that you need to store in separate envelopes.

This technique that has been around for decades helps you visually see the flow of your money and holds you accountable for every dollar spent, making budgeting a lot easier to keep.

But in today’s modern world of cashless payments, how do you make this old-fashioned budgeting style work?

Tweak it out.

You aren’t really limited to just using physical envelopes, after all it’s your budget and not Ramsay’s. You can actually use both cash and online bank accounts as saving stashes. Set up multiple accounts or have a debit card for certain spending categories. Or, of course, you could use real envelopes (they’re not expensive), or a pre-made system like this one:

Have a “pretend envelope.”

An option would be to have an empty envelope (or even just a post-it note) that will be designated for a specific category. Label the envelope and write the amount assigned to it.  As you spend (whether through checks, debit or credit card charges), subtract the amount and write that down on the envelope/post-it. This way, you get to see the remaining balance. When it’s already at zero, this means you need to stop spending for that specific category.

Determine your discretionary income.

Now that you have your plan, it’s time to calculate how much money you will be spending from after paying the fixed expenses such as taxes, rent, insurance, savings, etc.

Label your envelopes.

After deciding on which categories are best for cash spending, gather your envelopes and label each with the name of the category (e.g. groceries, gas, entertainment, etc.) and the amount inside.

Allocate cash realistically.

When you stash your envelopes with the amount allocated for each category, make sure to be realistic about it. Don’t put too little that you know is not enough because you’ll just end up falling off your budgeting system.

Practice self-control.

This budgeting style relies on you so make sure to spend only the cash inside the envelopes for each category.  Let’s say you’re going out to buy groceries for the week, bring your envelope with you and only use that amount to pay for your purchase.  In case it runs out, you can’t use money from other envelopes or use a debit/credit card.

Stash “forgot my envelope” money inside your wallet.

When you allocate money for each envelope, make sure to tuck away a certain amount of money that will only be used when you forget your envelopes. You might attach a blank post-it note to that money to remind you that this is only for envelope-specific things – and you can jot the purpose and amount on the post-it. This way, you don’t mess up your whole budgeting scheme in case this happens. If you end up using it, don’t forget to replenish it as soon as you get home.

Just like any budgeting style, it’s really all about self-discipline.  If you want to succeed and reach financial freedom, you need to be smart and wise about your financial decisions, no matter which technique you choose.