Complex Made Simple

Envelope Budgeting: How to make it work for you

By: Ambareen Musa, Founder & CEO of

When it comes to an activity as universal as budgeting, there’s always going to be a cool new app or a brand new system that promises to work. But if you’ve spent your fair share of time budgeting with spreadsheets and elaborate budgeting apps with a mediocre outcome, it’s time to go back to basics.

Sometimes the simplest of solutions are the most effective. Say hello to the original granddad of budgets – The Envelope Budgeting System!

Envelope budgeting has been around for years and as the name suggests it involves working with actual envelopes. Here’s a brief explanation of how traditional envelope budgeting works…

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Step 1: Create expense categories

The first step is to divide all your expenses into categories like house rent, kids’ schooling, debt installments, utilities, groceries, transport, recreational spending and so on. Then you’ll have to split your monthly income and allocate a spending limit for each of these categories.

Step 2: Get the cash and envelopes out

Since this system requires you to work with cash, it may not be practical for big payments that have to be made in cheques or online like rent, schooling, loan installments and utilities. You can use virtual envelopes for such categories.

For other categories like groceries, transport, entertainment and dining out, you’ll have to withdraw the cash from your bank account to get started. You’ll need as many envelopes as the cash-based expense categories you have. Then just write the name of a specific category on an envelope and put the allocated amount of cash in it.

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Step 3: Make payments from the envelopes

For the categories that you’re using cash envelopes for, all payments must be made from the designated envelopes. If you run out of cash before the month ends, you’ll know that you’ve overspent and it’s time to stop. Don’t sneak money out from other envelopes if you really want this budget to work.

Step 4: Track your performance

Check what’s left in the envelopes at the end of the month. If you still have some cash left over, you can choose to roll it over to the next month or reward yourself for the good work! If you fell short in a specific category, you can figure out how to cut back on such spending in the future or simply plan your spending better next time.

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Can’t handle cash? Use an app!

Find working with cash too much of a hassle? You can also work with budgeting apps that offer a modern take on envelope budgeting.

‘Goodbudget’ is a great app that offers a contemporary version of the tried-and-tested envelope budgeting method. This app allows you to replace physical envelopes with virtual envelopes. You can create as many envelopes as you need, automatically fill them and track the balance in each on the go. As a bonus, it also allows you to sync your budget across multiple devices and share it with your spouse, friend or whoever your budgeting partner is.

Envelope budgeting works! Here’s why…

-It curbs wasteful spending: Once you’re out of cash there’s no room for overspending. With finite cash, you’ll also think every purchase through more carefully.

-It limits credit card use: Credit cards can often tempt you to spend beyond your means. With a fixed cash allocation and your credit cards stashed away, sticking to the budget will be easier than ever.

-It brings financial discipline to your life: With more conscious spending, you’ll be able to save more and achieve your long-term financial goals faster.

Wondering if envelope budgeting will work for you? Why not give it a try and see for yourself!