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(…aside from the risk of paper cuts)

Have you heard about the envelope budgeting technique?

When it comes to budgeting, envelope budgeting is about as archaic as the old ‘save 10% of what you earn’ theory.

Don’t get me wrong, I’m not saying that these household budgeting strategies won’t work; I’m just saying that there are much better (and easier) ways to manage your money.

I’ve used both of these strategies in the past. In fact, my favourite book about money management, ‘The Richest Man in Babylon‘, is based on the 10% rule. However, the reason it’s my favourite is because it changed my whole mindset on managing money through simple story-telling. A very powerful book if you want to understand how to get the most from your money – and a very easy read too.

What Is The Envelope Method of Budgeting Money?

Home budgeting using the traditional envelope system involves categorising each type of expenditure that your household incurs and then having a separate physical envelope for each of those expenses. Then, every week, you withdraw $5, $10 and $20 notes from your bank account and allocate a certain amount to each envelope depending on the weekly cost of that item. Most people who employ an envelope budgeting method tend to do it on a monthly basis so that it’s not so fiddly every week.

Envelope Budget Method Example

The Envelope Cash Budget System can be very effective and, conceptually, it’s a great idea. The exact same principles of the Envelope Budgeting process works for families, couples and single people in managing their home budget.

So here’s an example. You first want to begin with outlining your Envelope Budgeting System Categories. These might include:

Mortgage / Rent


Car Running Costs


Energy Bills


Home Maintenance

School Fees

Holidays / Travel

Personal Expenses

Life/Health Insurances


You then label each envelope and figure out how much each expense equates to on a monthly basis. Then, each month, fill the envelope with the amount of money that item costs.

That’s all there is to it. The envelope budgeting process is quite simple and can be effective. But is it relevant in today’s world, or has it become a little outdated?

Envelope Budgeting Without Cash

In this day and age, using cash for purchases is as rare as common courtesy in the shopping centre car park.

So how does Envelope Budgeting work without cash?

Well, given that most of us have our salary or wages paid directly into our bank account; a way to incorporate the Envelope Budgeting technique into your life is to establish multiple sub-accounts attached to your main bank account. Most banks should offer this and many will allow such sub-accounts to be offset accounts to your home mortgage too.

This way, you can have separate bank accounts for each expenditure category, which is particularly useful for quarterly, half-yearly or annual expenses such as car registration, house rates, etc. so that you are prepared for these large lump sum costs by saving every month, rather than scrambling around for money when the big bill comes in, or using your credit card.


Having a digital/online Envelope Budgeting system such as this allows the amount that you transfer to each account to be more precise and easily transferred each time your wage gets paid into your bank account. For example, if my car registration was $942 each year, I could transfer $18.11 each week to my ‘Car Registration’ account. Obviously this is a lot more difficult where cash is involved. Some people prefer to use percentages when envelope budgeting, which can be useful if you have an income that varies from week to week.

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Envelope Budgeting Pros and Cons

Even though I no longer use the Envelope Budgeting method, I still believe it has its advantages. It ticks a few boxes:

√ Envelope Budgeting is DIY
√ The Envelope Budgeting method is free
√ It’s a great way of tracking your detailed expenditure and find where savings can be made
√ It keeps your everyday expenditure at the forefront of your mind and reduces the risk of spending getting out of control

What about the cons? What are disadvantages of Envelope Budgeting?

The disadvantages of Envelope Budgeting in my opinion is that it’s all too hard. I say time and time again that household budgeting needs to be simple, because if it’s not simple, you ain’t gonna stick to it.

Our days are filled with a variety of tasks, duties and responsibilities. Some of us occasionally like to let loose now and again. To do Envelope Budgeting properly, even if it’s all setup digitally and online with a dozen bank accounts representing each envelope, it will be time consuming and you will constantly need to make sure each account has adequate funds in it before making a purchase. On top of that, prices of the goods we consume are always changing, meaning you will constantly be amending the amount being transferred into each envelope.

Be honest with yourself. Is that something you think you can find the time to be doing every other week?

This is why I think Envelope Budgeting is dangerous. Because when your attempt at the arduous task of Envelope Budgeting inevitably fails, you will be convinced that budgeting is harder than it needs to be. I’m afraid that, if you try Envelope Budgeting and it doesn’t work, you will never want to try budgeting again.

Instead, why not begin with developing a simple, sustainable household budget from the outset?

Envelope Budgeting Alternatives

So, what’s the difference between an ordinary household budget and envelope budgeting?

Ordinary Budget vs Envelope Budget

There’s not a lot of difference between the two. Envelope budgeting will keep you more accountable for the amount you spend on each item, because it is inflexible and there is a specific dollar amount that can go towards that item; whereas an ordinary budget wouldn’t necessarily limit spending in one particular area, because itemising expenditure is more of a guide.

But there is a better way.


Goals-Based Budgeting

Now, this is where it’s at. I have tried every form of budgeting since I was about 14-years old. Envelope budgeting, saving 10% of my income. itemising every dollar spent everyday, web-based portals with direct feeds from my bank accounts categorising my expenditure, using various apps to track my spending and keep me on track…. you name it, I have done it.

There’s nothing I haven’t tried.

None of those methods listed above worked for me. You want to know why? Because they were all way too time consuming. And this is coming from someone who loves numbers and graphs and savings progress and all of that stuff. I always started off on the right foot – diligently recording my expenditure, but then I just got bored and it became a chore.

So what did I do? I created my own household budgeting and savings plan process and it all stemmed from my years of experience as a financial planner. You see, the very first thing a financial planner discusses with their client is their objectives. Because, without knowing where you are trying to get to, how can I put in place a plan for you to get there?

Everyone is different.

Every single one of us have different values. We have different ideas of happiness. Different plans for our future and our family.

So how can saving, say 10% of our salary help us achieve our specific family goals – the goals that are unique to our family?


How can stuffing money into envelopes to make sure we don’t spend more than we should help us get to where we want to be?

My current method of budgeting and the one that has worked very successfully for our family is Goals-Based Budgeting.

Goals-Based Budgeting rocks. And it is seriously simple – the way budgeting should be. Because our lives are busy enough than having to worry about every dollar we spend our money on.

Goals-Based Budgeting begins with the end in mind. It begins with what you want to achieve and then develops a plan to ensure you have everything you want now, while putting enough away for tomorrow.

I guarantee, by having your goals as the driving force and motivation behind your budget, you will have no trouble sticking to your daily budgeting plan – with or without envelopes.