Can Using an Envelope Make You Richer?

Envelope BudgetingMany years ago a friend of mine told me his trick to saving money.  I had always marveled at how much money he socked away and when I asked him how he did it, he said “it’s easy, just use the envelope system.”  Well, I tried his system and let me tell you, it really works!

My friend said that to save more money, he needed to get in control of when he was withdrawing money from the ATM and where and how he was spending his money.  He described a system in which he used labeled envelopes for all of his variable expenses, such as groceries, meals, transportation, entertainment, etc. 

This sounded like an ideal solution for me, because I found that every time I got paid, I either took out too much or too little money — if I took out too much, I spent it. If I took out too little, I was always going to the ATM.   Bottom line is, I was wasting far too much of my hard earned money.

Here’s how the envelope system works:

Create a spreadsheet

Fixed Expenses:
In one set of columns, list out all of your fixed expenses: mortgage/rent, credit card payments, etc.  Under the column for fixed expenses, list out every payment you know you need to make every month — it’s okay if it varies a bit (e.g. on credit cards, your minimum payment might be $50, so you can put $50 – $70).  You also put the due date in the next column and in the third, you indicate which paycheck those payments will come out of — this helps you to not only see what your fixed expenses are and when due, but also which paycheck covers those expenses.

Variable Expenses:
In the next set of columns, you indicate your varied monthly expense, such as:

  • Groceries
  • Breakfast, Lunch and Dinners out
  • Commuting costs, such as subway, bus or gas costs
  • Entertainment:  movies, hanging out with friends, etc.
  • Misc:  this column can cover those expenses you may not have every week, but that you want to budget for, such as personal hygiene or beauty items, magazines you may buy, etc.
  • Savings:  even if only $5.00 a week, this envelope is key, so please do create this one

It’s best to break them down by week and to also indicate which paycheck those expenditures may come out of.

The objective is to help you calculate how much money you need each week, so you can get an accurate picture of what you’re spending monthly.

The envelopes

Once you’ve created the spreadsheet, you then create corresponding envelopes for each of your variable expenses (not for  fixed expenses, since those are generally paid right out of your checking account).

When I created my envelopes, I had the following:

  • Subway/Bus
  • Groceries
  • Workday Meals (breakfast & lunch)
  • Meals out (going to restaurants at night, etc.)
  • Misc:  Personal Hygiene, newspapers/magazines, household needs.  For me, this envelope was the wild card, since I didn’t always spend the money I had allocated for this envelope each week — but  I still put the budgeted amount in and I’ll tell you why later).
  • Savings:  the amount I wanted to save each week

I got paid every two weeks, so I immediately allocated the fixed expenses (such as rent, etc.) out of the applicable paycheck — what’s left over is then supposed to cover your variable expenses or ‘discretionary spending.’

I then reviewed my spread sheet to see which variable expenses I needed to cover each week (it’s important to get a good idea of what you have been spending on these categories, to help you to calculate how much you need to budget).

For me, each week, I knew I needed to allocate the following amounts:

  • Subway/Bus:   $25.00
  • Groceries:  $60.00 (I was single at the time 😉
  • Workday Meals:  $40 (breakfast, lunches)
  • Meals out:  $40 (this was for the occasional meals I might have with friends on a weekend)
  • Misc:  $20
  • Savings:  $10

Total:  $195.  So each week, I had to put that amount in the corresponding envelopes, which meant that out of each paycheck, I put 2 weeks’ worth of those expenses into the corresponding envelopes.  It may sound like a lot, but I was spending that money anyway, and always running to the ATM — by doing it this way, as I needed that money, it was readily available and I just took it from the applicable envelope.

To set this all up took me about 20 minutes — believe me, it was well worth that minimal of effort. Once I put this envelope system in place, I started to see benefits immediately. 

Prior to this, whenever I got paid, I would either take out too much, or too little money from the ATM — take out too much and you’ll find you’re spending that extra $$ on something else — take out too little and you’re always running to the ATM and taking out more money…which you inevitably spend. Before I started using this system, I was wasting money and sometimes ran short, which can be a major problem when you need to buy groceries or get to work. 

Once this system was in place, I had better control over my spending and I was able to cover my expenses without fear of being short of the money to do so. 

The other benefit was that I was putting money into my “savings” envelope and  deposited that money into my bank savings account every two weeks.  But, here’s the other added benefit:  I didn’t spend all of the money out of my envelopes.  Some weeks, I would only use $10 out of my weekly allocated $20 for my “misc.” expenses — rather than spend that left over $10, I still took out the budged $40 (from my paycheck every two weeks) for “misc.” expenses, but put that previously left over $10 into my ‘savings’ envelope.

At the end of the first year, I not only had control over my money, but I also had deposited over $1,500 into my savings account!  Prior to that, I rarely, if ever, put money into my savings account, so the ‘envelope system’ worked on every level.

What you put on your spreadsheet and which envelopes you create depends on your specific circumstances.  Of course, some people use a debit or credit card for everything, but that doesn’t work for me — when I do use a debit or credit card for my weekly variable expenses, I find that I’m always spending more than I should and I don’t really put any money into savings. It’s hard to keep track of your spending when you just whip out a piece of plastic to pay for everything.

For me, the envelope system changed all that for the better.  Do be mindful though — if you’re putting that cash into Envelope budgeting-1your envelopes, make sure to keep them in a safe place! I put my envelopes in a metal lock box and I never carried it wall with me. When I needed to buy my Metro Card for the subway, I simply took the week’s cost with me and filled the card. When I went to the grocery store, I only brought the weeks’ worth of allocated ‘grocery‘ money with me.

Give it a try and see how it works for you — and remember one key thing:  no borrowing from envelopes!  The money in that labeled envelope should be to cover that particular expense.



  1. Bobby-boo says

    okay, all set up. Took me about 15 minutes, I’m psyched to try this. Get paid on Friday and will put money in each envelope. I have a feeling this is going to work great. thanks for sharing!

  2. Rita says

    I love this idea! I’m always running to the ATM and always take out too little or too much and when its too much, I spend it! I never use debit or credit cards if I can help it because it’s so hard to track spending.