If you are going to get out of debt and stay out of debt, then you better become really good at budgeting. Budgeting is essential to winning financially and the key component to an efficient personal financial plan. An effective way to help you and your household stay within the budget is utilizing the envelope system. I use this system. I have 3 envelopes: Food, Fun, Car Repairs. Of course, you can use as many as you need.
The envelope system is great for managing variable expense categories in your budget—like groceries, car repairs, entertainment, etc. After you’ve determined your budget for the current month—or after your family budget meeting if you’re married—place the determined amount of cash for those categories in the envelope. Write the category on the outside of the envelope. Use only the cash inside the specific envelope for that specific spending category. Once the envelope is empty, you’re done spending money on that category. If you need to make adjustments, only do so after consulting with your spouse, or making the proper adjustments to make the budget work. Try it. It works and it will keep you in line with your budget. It has worked for me.
Last week I was at the grocery store picking up a few things I needed. I only had $46.00 in my envelope. I did not bring my wallet or debit card with me. As I went throughout the store putting things inside my cart, I was trying to calculate the total so I wouldn’t go over $46.00. Sure enough, when I got to the checkout counter and the cashier added up the total, I was about $5.00 over. Because all I had was $46.00, I had to remove a few items from my cart. There was no more cash in the envelope.
Obviously, a few dollars over budget isn’t going to bankrupt you or blow up your budget. What happens is you repeatedly go just a little bit over your budget thinking it will be just fine. But, it adds up and can quickly put you hundreds of dollars over—which will blow up the budget and cause overdrafts on your checking account. Don’t mess around with overdraft fees. Those things can get expensive. Set a specific amount to spend, put it in an envelope, and stick to it. It will help your household financial plan become much cleaner and smoother which will allow you to better meet your financial goals.
*debt-free mormon is a certified financial counselor serving the northern Utah area. If you would like help with your finances, one-on-one counseling and coaching is available. Send an email to firstname.lastname@example.org