The Envelope Budget

Paying with cash can seem difficult when you’re already living on a tight budget. 😬 But instead of singing “Caro” by Bad Bunny to your money every time you make a purchase, the Envelope Budget method might be what you need to cut those expenses and build up savings, rapidito! It’s also really simple to apply to your daily spending habits, you could even begin right now!

Here’s How It Works:

Remember how abuelita would only take cash with her to the 99 Cents Store? That’s basically the envelope budget method. From each paycheck you receive, withdraw a percentage of it in cash. This amount should be enough for you to reasonably live off of for grocery, gas, and other basic expenses until your next paycheck arrives.

Once you’ve withdrawn the cash, divide it into designated envelopes for your intended expenses. 📩 For example, say you need $400 cash per paycheck to take care of basic needs such as gas, grocery shopping, take out food and general expenses. You would withdraw the $400 cash and then place $100 into each envelope – $100 for gas, $100 for groceries, $100 for take out (shhh…don’t tell your mami about that one 😬), $100 for general expenses (like that Target run).

Congratulations, you’ve just placed yourself on an envelope budget! Abuelita would be proud. 💪 Also, you are not allowed to withdraw any additional money or make any additional expenses beyond the $100 allowance you’ve given yourself for each category! 😱 Sticking to this method might seem hard, but people have found it helpful when it comes to getting a handle on overspending or when you’re looking for a very disciplined way to monitor expenses and save up as much as possible.

A great way to resist temptation is to only take the designated envelope with you when you’re going to make a purchase. Stick to taking the envelope you need and nothing else! No debit or credit cards, no checks, nothing except the envelope and cash inside (and ok, maybe your driver’s license, too).

When you go grocery shopping, only bring the groceries envelope, when you head to the gas pump, only bring that gas envelope. Etc. etc.

The Envelope Method is also a great way to practice mindfulness in your spending habits. Do you really need that cute $20 ugly Christmas sweater from Target? Or is that money better saved and utilized for other things… maybe it could even find its way into your savings account if you end up not spending it at all. 🤯

At the very least, give it a try! It could sound awful and totally unrealistic for making purchases in our digital-reliant world, but it could also be the breakthrough you need to get a handle on your finances and spending. And before you know it, you could be rolling in that cashflow just like Bad Bunny!

Sources: https://www.cmu.edu/homepage/practical/2007/winter/spending-til-it-hurts.shtml and https://www.nerdwallet.com/article/finance/envelope-system