The envelope budget system is an effective way to get control of your spending in order to restructure and eventually eliminate your debt. Consolidating your debt to a low interest loan can actually be harmful if you don’t have a plan to control your spending. Thats where the envelop system comes in.
- Label envelopes for each budget item. You will have envelopes for mortgage, car payment, groceries, entertainment, credit card payment, etc.
- When you have any income divide it up amount the envelopes. You’ll probably want to do this using a mixture of percentages and fixed costs. You mortgage will be fixed, but the amount you allocate toward clothing and entertainment might be a percentage.
- Each month pay your bills an do your shopping out of the appropriate envelopes. It is very important that you don’t take from one area to fund another. If you need to modify the allocation that is fine, but the budget is only good if you stick to it.
The envelope system helps make your budget something that is real and tangible and is a great way to get your debt under control. Long term you will probably want to go back to using a check book or online banking, but as a temporary measure to get back to a disciplined budget the envelope system is very valuable.
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