The budget envelope system

WHAT IS THE ENVELOPE SYSTEM ?

The envelope system is a method of budgeting that involves allocating specific amounts of money to different spending items instead of having an overall budget. The total budget is divided into “envelopes” for each spending category, such as food, entertainment, bills, etc.
Once the money in an envelope is spent, it is no longer available for other spending until the next budget period is allocated. This method helps to better control expenses and avoid impulsive or unnecessary spending.
You can use this system with physical envelopes, but also applications or even banks which are responsible for creating virtual envelopes for you.

THE ADVANTAGES OF ENVELOPES

This system is very simple to set up and integrate into your daily life. It is also favorable for improving your financial habits

The advantages of its use are numerous:

  • Respect the budget: You do not spend more than you planned. If an envelope is empty, you do not draw from another and you wait until the following month before the next expense.
  • Fewer Surprises: No more overtaking surprises. You see for real where you are. This allows you to see excessive spending coming and limit yourself, but also to see when the monthly budget reaches its limit.
  • A clearer view of your expenses: With each expense you reduce the amount contained in the envelope. You therefore always have an eye on each expense item.
  • A reduction in impulsive spending: As expenses appear in broad daylight and as you have a permanent view of them, you will no longer allow yourself to be seduced by impulsive, so-called “pleasure” spending.
  • Saving made easy: Each month, you put a fixed amount aside as soon as you receive your salary. And since the system prevents overspending, you don't need to draw back on your savings. In addition, you set aside the remaining balance in the envelopes each month. It also increases your savings.

HOW TO USE THE ENVELOPE SYSTEM

To set up this system, you must:

– Define the different categories of expenses
– Set the amount for each category
– Write the amount to be spent and the type of expense on each envelope, in a notebook if you use a binder or in a spreadsheet/application.

It is generally recommended to use the 50-30-20 rule.
This means that a maximum of 50% of your income must be spent on fixed costs (house, insurance, etc.), 30% on variable expenses (groceries, clothes, etc.) and the remaining 20% ​​is saved.

CONCLUSION

The envelope system has been in fashion for several years. And for good reason, it is one of the easiest systems to set up while being one of the most effective. It allows you to see in real terms the expenses and the money remaining for each item.