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3 FAQs on Budgeting by The Envelope System

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The Envelope System is something that can be found in a lot of personal finance books.

It is an idea which can be seen as one of the basics of budgeting because of its easy and simple nature. How do you go about it? This is a basic overview of it.

Envelope System
I have 2 major categories for my Envelope System!

What is the Envelope System?
This idea can be translated as something figuratively or literally. I know some people practice the Envelope System figuratively – they use separate accounts with different names so that they will be able to have a non-fuss budgeting system. Other people use literal envelopes because they feel that doing so makes their dreams more tangible. As for me, I use both.

How do I start?
You can start by figuring out what your Categories should be. You can choose what Categories to include – it’s your call! After doing so, you can choose whether to use literal envelopes or different savings account as your envelopes. Then, when your money comes, you can transfer funds to your online envelopes or you can withdraw your money and allocate a specific amount for each envelope.

Categories? What’s up with that?
Your Categories are purely subjective. To give you an idea, here are mine:

Online Envelopes
1. Short-term: Right now, my short-term fund consists of 2 goals – LJ’s tuition and also a fund for a vacation next year (2013).
2. Long-term: My Emergency Fund and a down payment for something big goes here!
3. Bills: Cable and electric bill are here.
4. Retirement Fund: I’m still young so I will be investing my retirement fund in equity funds.

Literal Envelopes
1. Tithe: Give back a little something in exchange of everything you have right now.
2. Play: This consists of eating out, watching movies, buying Lead CDs and clothes.
3. Groceries and Cellphone Load: This is very minimal since I only buy basic food.
4. Current Need/Want: I need/want a laptop battery right now since my laptop battery has been with me for 4 years already! I’m not that eager to buy one, but I think I will need to in the future, so I’m saving up for it currently. 🙂

Do you guys do the Envelope System?

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