Question: What is Envelope Budgeting, and Does Envelope Budgeting Software Exist?
Envelope budgeting is a simple and systematic way of saving to pay bills and to maintain a personal budget. Using personal finance software built on envelope budgeting principles really puts you in control of your spending.
Answer: Yes, there is software with envelope budgeting features that allows you to use this budgeting method without cash and envelopes. First an explanation of what envelope budgeting is, then more on envelope budgeting software features and choices.
How Envelope Budgeting Works
- To use envelope budgeting, first establish spending categories for your budget and then set spending limits for the categories. As with any personal budget, when you add up the spending categories the total must not exceed your monthly income. You can use another time period if it works better for your budget, but I will use monthly for this example.
- Using one envelope per spending category, write the name of each category and the monthly budgeted amount on the envelopes. If you are paid weekly or bimonthly, divide the total monthly amount for each category by the number of pay periods you have and record that number on the envelope as well.
- For this example, assume you cash a paycheck, although most people have their pay checks deposited directly. Cash your paycheck and put the allocated amount for each budgeted category into the respective envelope.
A very simple example would be a weekly paycheck netting $250 with these expenses:
- $50 going into the grocery budget envelope
- $75 to the rent budget envelope
- $35 to the gas and auto maintenance budget envelope
- $15 to the utilities budget envelope
- $35 to the personal care and clothing envelope
- $40 to the savings budget envelope
- When you go shopping or pay a bill, take the money for the payment from the appropriate envelope.
The beauty of traditional envelope budgeting is that it forces you to stay in touch with your spending habits because once the money is gone from an envelope, you cannot spend from that expense category until the envelope is replenished from your next paycheck.
Envelope Budgeting with Financial Software
Today most people use direct deposit for paychecks, electronically transfer funds between accounts and use debit cards, credit cards or checks to pay for most purchases. This makes envelope budgeting obsolete. However, financial software that is built around envelope budgeting principles lets you use convenient payment methods and direct deposit while using the discipline of envelope budgeting.Envelope budgeting software uses virtual envelopes or other graphics for expense categories to show spending activity and balances for spending categories. When you record income, the software distributes "cash" to each envelope. When a purchase is made with a credit card, tell the software which spending categories to use and the software deducts these amounts from the envelopes and then transfers the total expense to another envelope to hold the "cash" for paying the credit card bill. When other bills are paid such as a car payment or electric bill, the money for the payment is removed from the appropriate envelope.
Read Envelope Budgeting Software Choices to see what the best options are for envelope budgeting software.
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