Envelope Budgeting

gift envelope with heap of greenbacks on marble table

Finding the right type of budget for your style can take a little flexibility. If 50/30/20 or zero-based budeting isn’t right for you, maybe envelope budgeting is.

Envelope budgeting involves putting money into either physical or virtual “envelopes” to cover the cost for certain items in your budget. Traditionally, people would use envelop budgeting with physical envelopes and cash, a system that works well for tipped employees or those who take in cash as their primary form of income. It’s a helpful system for people who have an inconsistent income, although now, people use spreadsheets to put their money into online “envelopes” or use budgeting software based on the same idea, such as Goodbudget or the Mvelopes.

We’ll walk you through how to create envelope budget so you can better track your spending and see areas you can cut from your budget to save more, pay down debt, or set aside for a big-ticket purchase.

Creating Your Envelopes

First, determine all the different expenses you have each month. Then, create envelopes for each expense and put the allocated money inside. For example, your house payment envelope may contain $1,500, while another envelope may have $100 for takeout food. Each time you spend money on a certain item, you pay from that envelope. So if you spend $20 on pizza, pay from the “takeout” envelope, leaving you with $80 left for the rest of the month.

Why Envelope Budgeting Works Well

Envelope budgeting helps people who seem to run out of money before they run out of month, or who may have trouble with impulse spending. It’s easy for a few dollars here for morning coffee or there for renting movies to add up fast. Using envelopes to give yourself an “allowance” for non-vital expenditures can help you be more accountable for the money you spend.

It’s also good for people who want to get away from constant swiping credit or debit cards, or who may end up with overdraft fees because they aren’t sure where their money is going. Plus, cash spenders may find it more difficult to overspend – once the cash is gone, it’s gone until the next time you fill up your envelope, whether it’s on payday or monthly.

Drawbacks to Envelope-Based Budgeting

Some people may find that going to the bank or ATM regularly to withdraw large sums of cash inconvenient, or may not like having cash around the house in case of theft. Envelope-based budgeting may make online bill payment awkward, if you’re constantly cashing your paycheck, dividing it up, then placing the cash back into a bank account to pay bills.

Paying Bills With Envelope Budgeting

Each time you get a paycheck, or you receive payment from selling goods or after a shift working in a tipped position, place the cash integrated envelopes. For example, out of a $1,000 paycheck, $300 might be put in the rent envelope, $100 into groceries, $50 into the power bill envelope, and so on. Once you’ve filled the envelope, pay your bills.


Envelop budgeting works well for people who have inconsistent income, or who are just starting out with budgeting. It’s also excellent for impulsive spenders, as it forces them to place limits on what they’re spending.

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