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UMe’s Helpful Tips: Envelope Budgeting

There are many different ways to create a budget in the UMe-verse (and beyond) – one of the simplest is envelope budgeting. An envelope budget system is an easy, hands-on way to stay on top of your spending. You can do it throwback-style with actual envelopes (hence the name) or go digital for paper-free, stress-free budgeting!

The UMe Emu holding an envelope under the words Envelope Budgeting

Whether you’re a budgeting newbie or an expert math ninja (like a UMe Personal Banker), envelope budgeting can be a real game-changer for putting your cash flow in order and getting into the practice of being diligent about your budget for good!

Find out how it works and build your envelope budget in a few easy steps.


What exactly is envelope budgeting, anyway?

The foundation is simple: grab some envelopes and a piece of paper to schedule your budget for the following month. On the piece of paper make a list of your monthly expenses  – noting the category and cost. Then label each envelope with those expense categories, and then allocate cash into each envelope accordingly. Feels good to be organized, right?

Now, as you go — spend as you see fit! When you find the envelope running low on cash, that is an indicator that you’re nearing the end of your budget that month, for that specific category.

For example, let’s imagine that you have designated $600 each month for groceries. Take your “grocery” envelope with you to the store throughout the month and only use the cash that’s in it to pay at the checkout line. When you’re back home, you can track your monthly progress by counting the cash you have left in the envelope! Easy as pie.


Benefits of envelope budgeting

This system is a known classic for a very good and effective reason: It’s tangible and direct. You will always have a straightforward picture of how much money you have spent and what you have left to spend as the month progresses. This can make spending feel more “real” and easier to wrap your mind around.

In comparison to using a debit card, where you need to remember your current balance, try to visualize how much you need for your remaining expenses, and remember when your next payday is. It’s a lot of mental computing on the spot! Whereas putting money in budget envelopes gives you a candid look at your spending as you go, which makes random spending less likely to occur.

Wait a minute… Did we say cash?! Yes, we did. Envelope budgeting has been around for ages — like, in the pre-computer times, and there’s a reason for that. It really works!


Ok, I understand Envelope Budgeting, but how do I start?

1. Calculate your monthly income

Take a look at your last pay stub. Make a note of what your income is after taxes and any other deductions are taken out of your paycheck.

Now account for any other sources of income you might get. Income from interest (we see U, smart saver!), side hustles, child support… you name it. Make sure to deduct any taxes you may owe, especially for those of you who are gig workers, consultants, and independent contractors.

Add that all up for your total “NET” income.

2. Give your expenses a name and assess them

List out all your monthly expenses and what you think or want to spend on them. A good rule of thumb is to base your budget on actual historic expense amounts. Just have a look at your statements and make an educated guess as to what future months can look like, or you can be fancy and do an average of what you actually spent in the last few months and base your budget amount on that number!

To get you going, see below for this handy list of standard expenses:

  • Rent/Mortgage
  • Utility bills
  • Food
  • Transportation
  • Minimum debt payments (credit card, loans)
  • Child care
  • Entertainment

Don’t forget to set aside funds for expenses that don’t happen on a monthly schedule, like quarterly insurance bills or bills for medical check-ups. You can set money aside for these infrequent but expected expenses using the same envelope method, even if you won’t dig into it monthly.

Here are a few common irregular expenses:

  • Car maintenance
  • Glasses and contacts
  • Apparel
  • Gifts and holiday expenses
  • Vet bills and pet expenses
  • Personal care services (like haircuts)

Don’t forget to save! Having a savings category is not only smart, but good for your financial wealth and mental health. We love a win-win!

Now add up your estimated expenses and associate that number with the envelope you’ve named.

3. Balance your income against expenses…

If your expenses are greater than your income, that’s totally okay. We’re here for U.

First, split up your expenses into “need-to-have” and “nice-to-have.” Look at your “need-to-have” list (aka essential expenses), and see if you can reduce any costs by saving on streaming services (yes we have a blog for that) or cutting back on those long but gas-guzzling drives down the PCH.

Now for the “nice-to-have” list, just consider and organize what is really important and what you can go without. (Keep in mind you don’t have to go without it every month, but maybe move that item to a quarterly expense…)

To give yourself a bigger buffer, take another look to examine if there’s more you can realistically cut from your budget. Small cautionary note: Try your best to have your income be greater than your budget with healthy padding. If your expenses end up outpacing your budget, you are likely to go over-budget and then (understandably) get discouraged.

4. Mark up your envelopes and get ready to roll!

Using your list of expenses from step #2, mark up your envelopes and attach the cost of the overall expense to each category.

And hey, it’s not a bad idea to be specific, either! For example, you might want to have one envelope for groceries and one to spend on restaurants. (Some of us personally need a separate envelope just for coffee.)

Most importantly, put cash in those envelopes and take a deep breath because you’ve done something amazing for your wallet, your mind, and your future self!


Digital envelope budgeting for the cashless budgeteer.

Okay, it’s 2022. We know that a growing number of people do not use paper money as much anymore even though some people find it really useful to go cash-only to get their spending in control. Well we have good news for U, because it’s so simple to make this entire envelope budgeting strategy go digital with envelope budgeting apps!


Is envelope budgeting right for U?

The envelope budgeting method is a time-tested, easy and reliable way to keep you in control of your budget. But if it doesn’t feel right for you, don’t be discouraged! There are heaps of ways to budget. Like the 50/30/20 budget strategy and the zero-based budget method. We’ll be back on the UMe blog with information on those, so stay tuned!

If you have any questions, please give us a call at (818) 238-2900 or email us!

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