How to Budget Using The Envelope System - NerdWallet (2024)

FAQs

What is the Nerdwallet envelope method? ›

The concept is simple: Take a few envelopes, write a specific expense category on each one — like groceries, rent or student loans — and then put the money you plan to spend on those things into the envelopes. Traditionally, people have used the envelope system on a monthly basis, using actual cash and envelopes.

The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals.

It really was made famous (and a lot more popular) by finance guru and radio talk show host Dave Ramsey. All you need to get started are some ordinary envelopes, either store bought or homemade. Oh, you also need to mix in some financial discipline. You'll definitely need that.

You may also feel unsafe carrying cash, as it's harder to track it when it's lost or stolen. It can be cumbersome to get started: Getting all the envelopes ready and allocating money into categories can take some time to set it all up, especially if you haven't created a budget before.

And if you regularly overspend, you might not reach those financial goals you've set. The envelope budgeting system is one way to track your money each month, and it may help you curb overspending because it limits what you have available.

Use Goodbudget.

It's available on the Web, iPhone, and Android. Save for big expenses, share household expenses, and budget on the go. Goodbudget makes it easy to live out a budget based on the envelope budgeting system.

The 100-envelope challenge is pretty straightforward: You take 100 envelopes, number each of them and then save the corresponding dollar amount in each envelope. For instance, you put $1 in “Envelope 1,” $2 in “Envelope 2,” and so on. By the end of 100 days, you'll have saved $5,050.

Requires physical money – Because this system is all cash, you'll be less reliant (if at all) on credit cards. This could be inconvenient and may even cause you to lose out on some of the benefits of using credit cards, like a more active credit history and rewards points.

Are you approaching 30? How much money do you have saved? According to CNN Money, someone between the ages of 25 and 30, who makes around $40,000 a year, should have at least $4,000 saved.

In his free webinar last week, Market Briefs CEO Jaspreet Singh alerted me to a variation: the popular 75-15-10 rule. Singh called it leading your money. This iteration calls for you to put 75% of after-tax income to daily expenses, 15% to investing and 10% to savings.

How much should I budget for a 60k salary? ›

The 60-20-20 budgeting rule offers a straightforward and effective approach to managing your finances on a $60,000 salary. By dividing your income into clear categories and sticking to these limits, you can ensure that you're covering your essentials, saving for the future, and still enjoying the present.

The idea is to split up your money according to how much you want to spend in each category—and then only let yourself spend until the cash in each envelope is gone. Envelope budgeting works best for variable expenses, like groceries and dining out, which change slightly every month depending on your spending habits.

RealBudget is designed to bring you the simplest form of money management in the most straightforward way possible. Create monthly budget envelopes, enter transactions, and track how you spend your money each month.

The beauty of the cashless envelope system in a digital format is its ability to integrate seamlessly into our daily lives. By leveraging budgeting apps, we can automate the process, ensuring that our spending aligns with our budget without the need for physical cash or manual tracking.

You just take the exact amount of cash you've budgeted for each category and stick it in individual envelopes. Then throughout the month, you check your envelopes to see what's left to spend—because you'll see the literal amount in cash. Right there. How easy is that?

The idea is to split up your money according to how much you want to spend in each category—and then only let yourself spend until the cash in each envelope is gone. Envelope budgeting works best for variable expenses, like groceries and dining out, which change slightly every month depending on your spending habits.

Envelope Saving Method Example

So here's a simple example of how the envelope saving method works. Say that you have $5,000 per month in take-home pay. Of that amount, $3,000 goes toward fixed expenses and debt repayment, while $500 goes to savings. That leaves you with $1,500 to cover your variable expenses.

It works like this: Gather 100 envelopes and number them from 1 to 100. Each day, fill up one envelope with the amount of cash corresponding to the number on the envelope. You can fill up the envelopes in order or pick them at random. After you've filled up all the envelopes, you'll have a total savings of $5,050.