How the envelope budgeting method works

The envelope budgeting method uses a cash-based approach to help people who struggle with sticking to a budget to be more mindful of their spending. It allows you to physically see how much you spend.

Start by dividing your income into different spending categories, such as bills, groceries, savings, gas and entertainment. You can tailor your categories to your specific situation. However, don’t forget to create envelopes for irregular expenses, such as taxes, insurance and gifts.

Then, assign a certain amount of cash to each category. There’s no set amount. The dollar amount you place in each envelope should reflect your needs and personal goals. For example, if you spend $100 a week on groceries, put $400 in the grocery envelope for the month.

Once the envelope is empty, you can’t spend any more money in that category until the new budget period begins. If you have money left over in any of the envelopes, you can either keep it in that envelope for next month or remove it and add it to your savings account or emergency fund.

If you no longer use cash to pay bills, this method is easy to apply to a budgeting app.