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The Modern "Envelope System" for Your Budget

Updated: May 19


We live in the Digital Age, thus the traditional ‘Envelope System’ is a little outdated. However, the concepts behind this system holds the same value as it did 20 years ago.

If you have not already read my post on Saving With a Zero Dollar Budget, check it out for some insightful information on effective budgeting.

For those of you who are not already familiar with the envelope system, it is a method of putting the cash for each of the expense categories in your budget, such as groceries, entertainment, gas, etc. into an envelope labeled with the category.


Why would someone put cash into envelopes instead of just leaving it in their account and swiping their card at the machine?


The simplest reason is to make sure that you do not accidentally over-spend on a particular category. It also helps with developing self-discipline because when you limit yourself to only the amount of money in the envelope, you have to really think about the cost and whether you can actually afford it, or even if you should but it, whatever ‘it’ may be.

For example, here is a common scenario in my own life:

I am on my way to work, woke up late so I haven’t had any breakfast, there is a long day ahead of me, and I think 💭 💭‘Hmmm, I sure feel like having a Peppermint Mocha’ (one of my favorite Starbucks drinks ☕).


I peek into my Starbucks envelope, because yes, I need an ENTIRE spending category just for my Starbucks addiction, and to my dismay, there is only enough for two more ‘treats’ before my next payday in just as many weeks 😞. At this point, I have to seriously consider whether I want to ‘use up’ one of my treats.


Now let’s reconsider this scenario with no envelope. I check my account, there’s more than enough money for my one little Starbucks treat and Bam! I pull over, swipe the card, and I am merrily back on my way to work with no thought as to the consequences of that purchase.

That may seem like a frivolous purchase, but it is not the ‘what’ I bought that is important, so much as the difference in my approach to spending money.


Now, substitute my Starbucks treat for anything else in your life on which you consistently try to justify over-spending on your budget.

Hopefully, at this point, you can see some of the merit in using an ‘Envelope System,’ so let’s discuss how we can modernize this system a little. One of my main concerns with this system is carrying around an envelope of CASH in today’s world.


How do we replace these envelopes while maintaining a similar system?


By using “No Fee” Checking and Savings accounts.


Click the link below to check out an affiliate offer for this kind of account.



The first, and I would say MOST IMPORTANT “envelope” is the ‘Pay Yourself First.’ This refers to your monthly savings. When you are first starting out with budgeting, this may be a new expense for you as you may not be used to saving a set amount of money every month.

*Tip: If your employer allows you to split your Direct Deposits, request that a specific amount (how much you can comfortably save per pay period) to be directly deposited into that specific account, in addition to your checking account (where the remaining balance of your paycheck will go).

For more information on why you should Pay Yourself First, as well as, the three basic types of savings accounts everyone should have - Check out the How Money Works Brochure: A Common Sense Guide to Financial Success.

If you are just now starting out, use a Savings account at your own bank if there is one without a fee. If that is not an option for you, there are many online banks with similar features.


However, if you are already in the habit of saving money monthly, then you also need to check out the How Money Works Brochure: A Common Sense Guide to Financial Success. It contains some very valuable information on investing that will help you to make the most of your current savings.



The next most important “envelope” is for Rent/Mortgage and Utilities. If you already have a checking account that is used for direct deposit of your monthly income, I would keep this one for your Rent/Mortgage and Utilities. I also leave my recurring monthly expenses here, such as auto loan and credit card payments, child care, and insurance.

Remember that your Budget Template or budget app will help you to keep the due dates for these bills organized, so there are no ‘Oopsies’ and overdraft fees (more money for groceries 😉). You should always know exactly how much is going to be paid from this account, based on your budget, until your next payday.

Next up, variable expenses: the ones that can change from one month to another.

For the Gas “envelope” I would suggest purchasing a gift card (debit only) for the gas station(s) you usually use (probably the most convenient on your daily/weekly commute) and pre-loading your budgeted amount. This ensures that you do not ‘borrow’ unnecessarily from this “envelope”.

I would keep a copy of the gift card number and customer service number (if one is provided for lost cards ) in a secure, separate location, in case my card is lost.


Now I know someone is asking themselves, ‘What about gas CREDIT cards?’ - Nope! No! Non! Nein! - DO NOT fall into the credit trap! Unless you have superb, A1, excellent credit, you are probably going to pay more in interest and fees than you will actually be spending on gas (again, more money for groceries 😉). Some people may say, ‘I disagree,' and provide very compelling reasons for using a credit card with benefits such as cash back, or discounts like saving 5 cents per gallon. My response would be, ‘I agree.’ However, these benefits are only beneficial if you are responsible in your use of these cards. By responsible, I mean only charging what you KNOW you can PAY IN FULL when the bill arrives.



For your Groceries and Dining Out/Fast Food “envelope”, I would use a “No Fee” checking account with a bank that is different from your direct deposit bank. Having one card, or location, for all of your food funds should keep you more aware of how much you can actually spend on either groceries or fast food until your next payday.

If you’ve read my post on Budgeting, you should remember that I also mentioned the Ibotta and Checkout 51 apps that give cash rebates for buying grocery items, as well as referral cash for sharing your personal link (like I just did) with friends and family. **Subject to each app’s terms and conditions.


Finally, for the other Miscellaneous expenses that do not fall into one of the categories above, I would use another “No Fee” checking account with your budgeted amount for these other expenses. I would also group these together on my Budgeting spreadsheet so that I am aware of approximate amounts I budgeted on different items.

Good News! You will probably end up with a pleasant surprise at the end of the month, in the form of ‘leftover’ money in your “envelopes.” You can use these 'leftovers' as extra savings, or for a special 'treat' the following month, or both, depending on the amount.

As an independent, licensed representative of Primerica Life, I can provide a complimentary, personal, confidential analysis of your financial situation using our Financial Needs Analysis tool. Schedule your appointment now. **Appointments will be held via Zoom.


Not quite ready to schedule an appointment?


Request a copy of the How Money Works Brochure: A Common Sense Guide to Financial Success

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