Money Matters: The Envelope Budget System

Being a single mum means limited funds. Even if you do have a good job, you are still having to live on one income. So I thought today I would talk a bit about how I budget so that Monkey and I eat well and stay on top of our bills. There’s also this awesome freedom that comes with knowing you have no debt.
Straight Up – I want to tell you that I haven’t always been wise with my money. Before Monkey was born I had a good job and earned a pretty good wage, and I didn’t really worry too much about money or saving. I actually had a friend who was really good with money, and I thought she was so BORING! I had fun with my money and I didn’t think about the future. 

Fast forward a few years and I found myself pregnant, jobless, behind in all my bills, broke and  being chased by debt collectors. That was NOT fun…not even a little bit! I went through a stage where I would just not answer my phone b’cos I was afraid it was a debt collector!

Nowadays, I use THE ENVELOPE SYSTEM. My weekly income is $538, and from that I have to pay for everything. Since I started using the envelope system I now have no debt at all, and we are usually ahead of our bills or caught up, and I don’t freeze when the phone rings. 

Most of you have probably heard of the envelope system, (strangely enough, I hadn’t until a friend showed it to me). For those of you who haven’t, this is how it goes.

You can’t use the envelope system without a budget. You need to know how much money is coming in, what you owe and where you owe it. For me, this meant creating a spreadsheet, but you can also do it on paper…whatever works for you!

This is how I work it out:
At the top of my spreadsheet I put my weekly income. That way I know exactly how much cash I have coming in for the week.

Next I put the living expenses that have to be paid, ie rent, utilities, groceries

Then I put the other important expenses such as credit card payments, phone bill, internet bill, insurance etc

Lastly, I put the expenses that are not necessary. ie, entertainment, toys, clothing etc.

So I start with the most important and finish with the stuff we don’t really need.
This helps me to keep my priorities with the bills in the right place. Things at the top HAVE to be paid, things at the bottom don’t. SIMPLE.

All my most important expenses are also paid electronically, meaning they come right out of my income or from my bank account the day I am paid, so they don’t go into envelopes. 

Once you have sorted which bills will be paid electronically and which ones you will pay with cash….write those expenses onto your envelopes. eg: Groceries, Transport…etc
I withdraw all my pay at the one time, only leaving in the bank the money for the expenses I know are coming out electronically.

Fill the envelopes with the exact money that you have allocated in your budget for each of those items. (It’s best to start this system for the first time on pay day). 

Now you can spend your money. So if you have to buy groceries, and you have allocated $200 for that… can only spend $200. If you spend less than that, put what is left back in the envelope for another time. When all your money is that envelope has been spent, you cannot spend any more money on that until your next pay day.

On your next pay day, empty what’s left in the envelopes and put that money into a savings account or you can do what I sometimes do – use that extra money to put extra money onto my electricity bill (or some other debt), so that when my bill comes in it’s not quite as big.

On your next pay day, do your budget for the week / fortnight / month again and refill your envelopes.

At first I really had trouble with this, mostly because I had lived a life of “robbing Peter to pay Paul”. After using it for a few months, I started to change the way I thought about my money, and then it was much easier.

If you have any questions about this at all, please ask, I’m so happy to explain.

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  • Thank you so much for this lovely blog post. Every employee runs his family which is based on a budget that consists of his fixed monthly income. As he suddenly runs out of funds in between two consecutive paydays could create a financial crisis in his life that would make his life come to a standstill. That is why making a budget and following it is so important.