Envelope Budgeting. How To Use An Envelope Rotation Budget On A Single Or Lower Income.

I’ve noticed a lot of people trying to attempt a newer way of budgeting; Envelope Budgeting! It’s a great concept where you allocate money to certain bills and expenses, and you ONLY spend money that you have allocated to that particular bill or expense. I think this idea is great, it definitely works if you actually remember to plan for every expense. It was hard personally during my first attempt, because I would remember all of my bills, but forget expenses like buying toilet paper and paper towels, remembering a diapers expense for the kids, but not the wipes. It was much trial and error, but from my personal experience, YES it does work.

My biggest concern with envelope budgeting is that a lot of what makes it efficient is having the money to basically get a month ahead on your bills. If you’re new to this and I lost you just now, let me explain. If on average, you spend about $200 a month on groceries, there would be an allocated $200 in your “Grocery” envelope to spend, and you would spend nothing more than your $200. The $200 would obviously have to be in the envelope ready to go when the first of the month comes along, so I thought, “Well what if you don’t have that option?” In order to make the normal way of envelope budgeting work you have to find a way to stay 1 to 2 months ahead of expenses. So lately, I’ve been trying to use a new way to budget our household expenses, while also using envelopes to help you stay on budget. So far, it’s shown to be a great way to stop overspending, without needing to always be a month or two ahead. This is obviously from my personal experience, and I’m not expert, but maybe doing this could also work for you! All you need is a few envelopes, and a general idea of your average household income.

1. Estimate your average monthly income
If your monthly income fluctuates, just use what you think is average, and remember to aim on the lower end. This ensures that you aren’t falling short in the long run. It’s better to budget with less.

2. Make a list of your various household bills in no particular order
Off the top of your head, list your monthly household expenses and try not to leave anything out. This is something that could also be doing in Microsoft Excel if you’d prefer to keep things digital. Things like Mortgage, Water, Electric, Insurance, Phone, Groceries, are obviously hard to forget, but don’t forget to estimate Household Expenses (Toilet paper, Paper Towels, Cleaning Products) Personal Upkeep (Haircuts, Nails, and other Grooming), and last but not least, personal fun money, and family fun money!

3. Take the items on that list and relist them in order of priority
This is best done on another sheet of paper so it can be separated into columns. What bills take top priority? Think of the expenses you would pay and take care of before anything else. Things like your Mortgage, Electric, and Water might fall higher on your list. Personal Fun Money and your subscription to your favorite beauty box might fall somewhere lower on the list for example.

4. Rewrite the list in order of due date
In column 2, you should rewrite your expenses listed in order of when they’re due throughout the month.

5. List the due dates for your expenses
For the sake of organization, make sure you either add a column to list the actual due dates for your expenses, or add the due date to you list in column two. When you look back on your budget, it will make things so much easier to have the actual dates listed.

6. Add a column for bill pricing/budget
In column 4, list the prices or preferred budget for all of your household expenses. If it’s an expenses that possibly fluctuates, it’s best to budget high to ensure that you aren’t coming up short.

7. Find the total of all of your monthly expenses

Add up all of your monthly expenses to get your magic number. Now, this is where you can really take a look at your current household budget for a second. If the total of your monthly expenses is more than your monthly income listed, then you should either focus on lowering your monthly expenses (You can start from the expenses on the bottom of your priority column) or find ways to increase your household income.

8. Divide your expense costs
Divide the cost of each of your expenses by 2 (If paid biweekly) and 4 (If paid weekly) to get the total that should be placed in your envelopes with each pay day.

9. Add that total to your envelopes weekly or biweekly
Label your envelopes to match your household expenses. Adding to your labeled envelopes weekly or biweekly as if you’re paying ALL of your bills every payday, ensures that by the actual due date of that expense the money has already been put aside for payment.

10. Rotate if need be
Now, because you’re budgeting using your income as it comes in, there could always be room for a shorter paycheck, or maybe the due date of an expense comes before you’ve paid all 4 weeks in full. Assuming you’ve hit that target number of income to cover your monthly expenses, and assuming your monthly expenses were all within the numbers that you budgeted for, it should be no problem for you to rotate your weekly envelope payments to suit your needs for what is due.

IF you find this necessary, you should make note of this on the envelope that you withdrew money from. Using your list where your expenses are listed in order of their due date, you should choose to draw from expenses due later in the month, or early in the following month to ensure adequate time to replace it. This keeps things in line to make sure that you’re only using money for your bills, while also not overspending.

With everything, this method is trial and error. The longer you keep at it (I’ve been doing it for 2 months now) you can see what works for your household personally and adjust accordingly.

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