"Staying on budget is right up there with making it to your 5am workout class—it’s not very fun. Like most things that are good for us, it is much easier if you have a plan to follow. Fortunately, there is a pretty tried-and-true method for sticking to a budget: the Envelope System.
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What is the Envelope System?
The Envelope System was popularized by finance expert Dave Ramsey. It is a method for keeping your spending in check—not just your overall budget—but also for those moments when you might accidentally spend your lunch money on a new moisturizer. You set your budget and have a corresponding envelope filled with cash for every section. These categories can be as general or as specific as you want. You might be happy with having a catchall envelope for self-care, while someone else likes to separate things out with envelopes for workout classes, facials, and therapy. Both ways are fine, as long as you have envelopes for every budget item and fill them with the right amount of cash every month. The trick to this is only spending money from the envelopes and only for its budgeted purpose. This way, you can physically see the money you are spending—and when it’s gone, it’s gone!
The problem is that cash can be inconvenient to carry and use. Plus, you miss out on all of the opportunities for things like credit card rewards, which is not ideal when you are saving up travel points for your dream trip to Paris.
What are the Alternatives?
If you want to try this method, but are not quite ready to give up your credit card, there are a few options for getting the same result using technology. These range from just a step above the envelope system to pretty cutting edge.
Digital Note-Taking Apps
You can use the standard notes app that comes pre-downloaded on most phones, or choose really any note-taking app you like. Create a checklist with every budget item and list how much you spent every time you make a purchase beside the budget line. When you reach the spending limit of a budget category, check the box or cross it off and know that you are done spending for the month. This is a pretty fast and loose approach unless you love to do math, but the best part is that you are actively tracking your spending and seeing how much it goes up every day.
Spreadsheet
This option is a step up from just using notes on your phone. Setup can be a little tricky if you are not familiar with spreadsheets, but most systems (like Google Drive) have templates to help you get started and some also have an app for your phone. The process is similar to the way you would set up the note-taking approach, but instead of using rounded dollar amounts, you put in the exact cost and the spreadsheet will subtract that from the total budgeted amount. All the perks of actively tracking your spending, but once you have the spreadsheet set up it does all the work for you.
Budgeting Apps
There are plenty of budgeting apps out there like Goodbudget, which are actually based on the envelope system. Any of them will help you keep on track with your spending, but my favorite is Mint. They have both a website and an app. This is great for if you want to have a thorough review of your budget or just want to glance at it on the go. Like the envelope system, you can create budget categories with as much detail as you like. Mint does a great job sorting your expenditures into the right section.
The only downside is that you connect all of your financial accounts to the platform and it does all of the tracking for you. While that is easier than logging everything yourself, you miss out on seeing all of the expenses add up in real time. But Mint does send out reminders and notifications about upcoming payments and any unusual spending. And the real perk of using an app that connects to your credit card is that you can track trends that maybe should be a line item in your budget. If you notice something like a charge to your favorite coffee shop happening more mornings than not, it is easy to make budget changes in Mint. You can even carve out a separate category just for coffee, because it’s OK to buy the latte!
Beyond your monthly budget, Mint lets you see your entire financial footprint in one place, including tracking all of your loans, savings, and investments. So once you get this budgeting thing down, you can start working on the next thing: your credit score.
The opinions expressed in this post are my own and are not representative of those of my employer.