Are you trying to take control of your finances with a budget and struggling to find a solid method to do so? There’s a method which I call the envelope method budget, and the financial advisor I spoke to, called it the zero-balance budget. It’s an efficient way to keep track of spending, especially when paired with budgeting apps like GoodBudget.

Before I explain how this budget works, a few disclaimers. This budget is ideal for people who have a consistent income. That doesn’t mean you can’t use it if you work a job where pay is irregular or the amount coming in fluctuates, but it’ll require more effort to make it work. Finances are stressful and in a capitalist society, budgeting isn’t the silver bullet to poverty. This guide is not intended to suggest that budgeting will fix poverty. It never could.

The envelope method

The envelope method works like this: figure out how much you make monthly. Next figure out what your monthly expenses are. Your goal is to account for every last dollar you make and put it, either literally or figuratively in an envelope. It helps to start with the more obvious ones like rent/mortgage, utilities, and whatever subscriptions you have (e.g. Spotify Premium, Netflix, Disney+, your local paper, etc.). You’ll want to group these expenses into categories:

  • Rent/Mortgage
  • Utilities (electricity, sewage, water, trash, etc)
  • Media subscriptions

Now think of other categories that might encompass expenses you have on the regular. When I was living in Chicago, I had an envelope for my CTA fare. When I moved out of the city that envelope became “car shit” – gas and car insurance lumped together. And since I have regular appointments with a therapist, I have an envelope for medical expenses called just that. You’ll also want to figure out how much you spend on groceries on average in a month.

  • Rent/Mortgage
  • Utilities
  • Media subscriptions
  • Transportation
  • Medical expenses
  • Groceries

Once you’ve got the more obvious monthly expenses figured out, if you have money to put away in savings you’ll want to create a savings envelope. Next you’ll need to figure out what other things you spend money on: donations, makeup, takeout, hobbies, movies, etc. Maybe you don’t have specific expenses you’d like to budget for, just create an envelope called something like free spending.

  • Rent/Mortgage
  • Utilities
  • Media subscriptions
  • Transportation
  • Medical expenses
  • Groceries
  • Savings
  • Free spending

That’s what it’s all about

Once all of that is done, the total in all your envelopes should be the same amount that you bring home each month. Some people, like my parents for a period of time, used actual envelopes with cash in them. They wrote little notes on index cards about how much of the money in those envelopes was and for what purpose.

As a millennial, I use an app. It’s called GoodBudget. I keep track of all my spending through it. I highly recommend that when asked if you want your receipt that you take it so that you can either enter that spending in your budget app of choice or put the receipt directly into the physical envelope you use to keep your money. If you buy things that go into more than one envelope, such as picking up milk at the convenience store while getting gas, your app of choice will likely allow you to split the total into different envelopes. If you’re using paper envelopes, you can highlight different items on your receipt with different colors.

Troubleshooting

Sometimes things will come up that you can’t budget for such as your car breaking down. You can take money from savings, move money around from different envelopes, but this is where the budget method won’t help you much. If, on the other hand, you find yourself going over budget in one area on repeated basis and keep finding yourself moving money from one envelope to another, that’s a good sign you need to shuffle money around so that you’re not repeatedly dipping into other envelopes to pay for things that are supposed to come out of a different envelope.

When it works, it works well

Though it doesn’t work for everyone, this budgeting technique is incredibly helpful for a lot of people and that’s why I’m sharing it with you. There are plenty of people who teach this method of budgeting as if it is the cure-all, but truthfully it’s just a budgeting method. There’s no need to attach a bunch of moral judgments about how people budget their finances. This is just one of many methods and hopefully it’ll help you.


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Jamie Saoirse O'Duibhir

By Jamie Saoirse O'Duibhir

Editorial Fellow