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Budget Better with Envelopes

December 28, 2023

Hands putting a stack of dollar bills into a white envelope

If you’re one of the many people who resolve to budget better in the New Year but you’re not sure how to get started, here’s a tip. A simple envelope can be a great ally in helping you spend smarter and save money.

The envelope technique is a popular, effective way to start—and stick with—a new budget. It can help you manage spending without the hassle of tracking every dollar.

How does it work? First, outline all your expenses (such as groceries and entertainment) and assign an envelope to each spending category. Then, place a specific amount of cash into each envelope. When you head to the grocery store, for example, take cash from the appropriate envelope, or take the envelope with you. Once the envelope is empty, you’re done spending in that category.

If you have cash leftover in an envelope at the end of the month, good for you! You can keep the money in the same envelope for spending next month, or transfer it to a different envelope to cover other expenses. Or you can move it to your savings account. All are good options.

Each envelope, and how much cash it contains at various points in the month, provides an important visual cue that helps to understand and manage spending in specific areas. While you can move money between envelopes, it’s best to resist the urge to add more cash or pull out your credit card when you’re running low.

People say they’re more mindful about their spending when they use physical cash, but you can use the envelope system digitally, too. RCU is here to help! We can work with you to set up free savings accounts that act as digital envelopes, with automatic deposits to each account to ensure you never forget to put money aside for all your needs.

The key to successful budgeting is finding a technique that works for you. We’ll describe other methods in the next few weeks. Whether you want more flexibility, or more discipline, budget planning can help with your overall financial well-being.

Visit RCU’s Financial Education Center to find more useful resources.