Most of us are fairly familiar with the envelope system. It consists of pulling out money at the beginning of the month and organizing it into different envelopes based on expense types. The amount you need for bills, food, gas, car payments, and healthcare would each go into its own envelope. Once divided up, the money inside each envelope is all you’re allowed to spend on that expense type for the month.
Is the envelope the right system for you, though? The answer is ultimately going to be different for everyone, but there are two primary things that draw people to the envelope system: organization and limits. Here’s a rundown of both and how well they may fit your budgeting needs.
The first major allure of the envelope system is that it organizes your money visibly and neatly: you’re able to see in a concrete way where your money goes, and how much of it is being spent on each category. This is invaluable for those of us who feel like our monthly expenses are a fuzzy knot we can’t quite get a handle on pulling apart.
Money in a bank can feel like just numbers on a screen, and having a physical representation of it makes it easier to understand its weight and impact.
The second major appeal is that the envelope system puts limits on the user. If you have a habit of overspending in a category, sticking to the envelope system ensures that you won’t have that option anymore. It sets clear, defined limits on spending: there’s no fudging the numbers in the envelope system. What you have is what you have, and if you run out of food money in the middle of the month you’ll have to just make do with what’s already in the house.
It may be tough the first couple months, but having such rigid limits teaches and encourages users of the system to think ahead and pace their purchases. If you’re working the system with a partner you’re accountable to, it can help you take a step back from every spending impulse that hits you.
So why not use the envelope system? There are a few downsides: it’s hard to move funds around for unexpected expenses, it stops you from taking advantages of sales, and not everyone likes keeping so much cash at home. The upsides of the envelope system we talked about above also aren’t exclusive to it, with other equally convenient ways of achieving the same results.
If you have trouble visualizing your spending, there are many apps that automatically divvy up your spending and show you in graphs and pie charts where your money goes, and will even project what your future spending will look like. If what you’re worried about is limiting your spending, apps can also help with that, notifying you where you’re overspending.
By this point you should have a good handle on what makes the envelope system work, and if it sounds like a good option for you. Everyone is different, and ultimately only you know what will work for you.
If you’re thinking about using the envelope system, you’ve probably also been in the unfortunate situation of having an unexpected expense take away all of your savings at once. If this happens to you, a title loan could be a viable option for getting quick access to emergency cash. This type of short-term loan is easy to secure by using the title of your car as collateral. They’re a fast cash option that could provide you with up to $15,000 today.
The envelope system may not be for everyone, but it can be an invaluable tool for individuals who are learning the basics of budgeting or have fallen into debt due to bad spending habits. Think of it as training wheels for your wallet; one day you’ll look back and wonder why you ever needed it!