How the envelope budgeting method works

The envelope budgeting method uses a cash-based approach to help people who struggle with sticking to a budget to be more mindful of their spending. It allows you to see how much you spend physically.

Start by dividing your income into different spending categories, such as bills, groceries, savings, gas, and entertainment. You can tailor your categories to your specific situation. However, don’t forget to create envelopes for irregular expenses, such as taxes, insurance, and gifts.

Then, assign a certain amount of cash to each category. There’s no set amount. Your dollar amount in each envelope should reflect your needs and personal goals. For example, if you spend $100 weekly on groceries, put $400 in the monthly grocery envelope.

Once the envelope is empty, you can’t spend any more money in that category until the new budget period begins. If you have money left over in any of the envelopes, you can either keep it in that envelope for next month or remove it and add it to your savings account or emergency fund.

This method can easily apply to a budgeting app if you no longer use cash to pay bills.