Envelope Budget System & Excel

Lately I’ve received a lot of inquiries about the envelope budget system, how the envelope system works, and how Excel could possibly help a person use the envelope budget system. I thought it would be worth writing an article about.

First off, let me just explain the envelope budget system in general, we’ll then get into the advantages and disadvantages of the system, and how Excel fits into the scheme of things.

The beginnings of the Envelope Budget System

While studies have shown that even grandparents are on the slippery slope of access to easy money, many of them have had certain values instilled in them throughout their life that have helped them become masters of their money. One of these values was is live within your means. A sure-fire way of living within your means was to use a trusty Envelope Budget System.

Basically, Grandma & Grandpa would receive money from work. They would take this cash and divide it up into different envelopes. The envelope might have been labeled “Groceries”, “Savings”, “Oil”, “Entertainment”, etc. They could have as many envelopes as they desired – although they probably kept it pretty simple. When they went grocery shopping they would bring the “Groceries” envelope, and pay out of the “Groceries” envelope. If there wasn’t any money in that envelope, they wouldn’t buy groceries. If there was any money left over then that was just great! When they were paid again, they would start the process of this simple envelope budget system again, refilling the envelopes.

Well, back in those days people didn’t go into bankruptcy nearly as often, credit cards were non-existent, and money on credit was pretty tough to come by. These days, things have certainly changed, and the American people are busy lining the pockets of the likes of Visa, MasterCard, Citibank, and so on. (Even our grandparents have fallen prey to the slick-talking, sleek-advertising wiles of sexy credit!).

Advantages of the Envelope Budget System

There are many advantages to using an envelope budget system. (1) If you really stick to what your envelope dictates (which was decided upon by you while you were not emotionally tied to that little scarfy thing in the mall you absolutely must suddenly have). If you don’t have money left in “Clothing” then you don’t buy any clothing – period. This is the biggest advantage to the envelope budget system: you are forced to live within your means. Every financial advisor should tout this as the principle of financial success: You must live within your means.

(2) Another advantage to the envelope budget system is its simplicity. You have envelopes. You fill those envelopes with money. You spend money from those envelopes. You don’t spend money from those envelopes if there is no money in the envelopes. Simple? Beautifully.

Disadvantages of the Envelope Budget System

I’ll be the first to say this: the envelope system can get a bit cumbersome for two reasons: (1) You have to divide your paycheck in cash. That means you have to go to the bank and get the right change for each envelope. This is a royal pain if you ask me. Especially if you don’t particularly enjoy going to the bank. (2) You have to remember to take the envelopes with you. My wife and I, while using the YNAB System, could not for the life of us get our grocery expenses to stay within our pre-determined budget. Finally we decided we would force ourselves to stay within budget by using the envelope system. If the cash wasn’t there, we wouldn’t spend the money.

Well, basically what happened is that we would forget to bring our grocery envelope with us when we went grocery shopping. This resulted in us having to whip out our debit card and then go to the dumb bank (see above) to “reimburse” our checking account with money from the grocery envelope. I had to do this multiple times in one month. We bagged the idea.

I considered putting the envelope in the car. My wife thought about putting the envelope in her purse. I didn’t like either of these ideas. If my wife’s purse were stolen we would stand to lose the entire month’s grocery money (instead of just having to cancel the debit card and make a trip to the awful DMV). If our car was stolen I would cry like a girl. Then when I remembered the envelope full of our grocery money for the month, I would cry like a girl again. My wife didn’t want to see that. (And I didn’t want her to see it either).

Excel in the Mix: Improving the Envelope Budget System

Pardon the push for the YNAB System in this next paragraph.

The YNAB system operates using a ‘virtual’ envelope system approach. That being said, basically what you’re getting is a list of categories or ‘envelopes’ that you put money into each month, based on the number YNAB tells you is available (I made it so easy!). When that number has been completely allocated to your ‘envelopes’ in Excel, you’re set to go.

Now, you make all of your purchases with a debit card. I suppose you could even purchase everything with a credit card and get the rewards, but unless you’re not carrying any balance whatsoever on any card, I wouldn’t recommend using cards at all. You still have a few things to master before you get to “fly the friendly skies” for free (is it really?).

So, for the sake of simplicity, you’re making virtually every purchase with your debit card. When you make a purchase, you record it in YNAB and that deducts money from your ‘envelope’. The system is pretty straight-forward. If YNAB tells you you’re out of money in that envelope, then you can’t (ahem shouldn’t) spend the money.

Remember, a budget should be simple. So if you’re looking to use 100 categories you’re going overboard. I use a category list suggested as a starting point by Dave Ramsey and have included that in the YNAB system.

Excel does a few things for your envelope budget system: you don’t have to get the exact change for envelopes – be exact down to the penny if you want. You won’t forget your debit card (well, some of you still will, but how can I help that?) like I forgot my envelope, you’re still able to track how much is in each envelope, and you can accumulate excess cash in your envelopes that is easily traceable.

That being said, you don’t need the YNAB system in particular. You could make your own envelope budget system in Excel.

My grandpa has told me (numerous times) how he could ride the bus downtown, get a burger, fries, and shake, see a movie, and ride the bus back for a quarter. While prices may have changed, the principles of good money management certainly have not. Take a shot at the envelope budget system and see how it works for you.

8 Responses to “Envelope Budget System & Excel”

  1. Tracy

    I totally agree with you about it being a pain to go to the bank and get all the right bills, etc. And besides, you COULD go to the bank, get your cash, accidentally leave the envelope in the van while you shop at WalMart, and come out to a smashed window and “gone” cash. Yup. I always wondered what would happen if your purse were nabbed, someone got in and took the cash, etc. Well, I found out. God took care of our needs, anyway, but it sure was a lesson for country mouse moving to the city. Yes, using debit card would be simplest–BUT handing over cash is “painful” (“Goodbye, Andrew! It was nice!” “General Grant, I love ya, man!”) , and it’s proven that people spend less. I’m still looking for the perfect “way”, but thanks for sharing your way of doing it, and its pros and cons. In the end, I’ll probably combine ways, somehow.

  2. Tish

    I don’t find it that difficult to go to the bank once a month. I do carry the envelopes in my purse, but so far have never lost my purse. I use the Dave Ramsey financial peace system, but my gripe with that is you have to purchase a whole refill of envelopes. I seem to use up my food envelope really fast, but since the envelopes are in a spiral bound, you can’t just replace one at a time. grrrrrrr. I suppose I could just make my own envelopes but haven’t found any that are quite as narrow as Ramsey’s. And then I’d have to have a way of keeping them all together since mine wouldn’t fit in the holder. I wish someone would make an envelope system with small loose leaf rings!

  3. Melissa

    Not sure if you’ll still be looking at this site, but since you carry all your envelopes in your purse, try putting your money in a coupon holder instead. We put our money in a tabbed coupon holder and an index card in each slot to keep a running total. I have found this much easier than keeping up with bulky envelopes and think this cheaper system works just as well as Ramsey’s!

  4. steve in w ma

    The amount of money that would ever be stolen or lost using a cash envelope system is miniscule compared to the overspending when you’re not using it. Even if I lost a whole month’s cash that’s *nothing* compared to what I can llose by frivolous spending in a couple of months when I’m not paying attention to my budget.

    If I forget my envelopes and have to go shopping, I just use my credit card. It only happens about once every 3 months, not a big deal. Then when I go home I take an equivalent amount of cash out of my envelopes and put it into an envelope that is designated for paying off the monthly balance on that card, which I also use for gas and online purchases. No need to be unrealistically strict about the envelope system. As long as you use the envelopes about 95% of the time, you’re good.

    • Jesse

      Hey Steve, that’s a good point about not being too strict, and just having it work for you a high percentage of the time. Thanks for pointing that out.

  5. steve in w ma

    You’re welcome!

    I find that using actual cash envelopes for my most “splurgeworthy” categories has been very helpful in reining in spending. For me I only use cash envelopes for Food, for Entertainment, and for Gas.

    This pretty much covers day to day and week to week spending, as almost every other type of expense either is infrequent or is paid by check or electronic check.

    One benefit that I have noticed of using cash in the envelopes to spend is that, because something like 95 percent of my transactions end up being from those envelopes, I have begun to associate spending with getting out the envelopes and the cash in them. The reason this is helpful is that as a result (and unexpectedly) I have almost *stopped thinking about my credit or debit card* as a method of purchase. If there isn’t cash in an envelope for the purchase, or it is a purchase that is not from these 3 cash envelope categories, it now causes me to step back and think and refer to my budget.

    Using the cash envelopes has detrained me quite a bit from even thinking about reaching for my credit card (or debit card). This has been extremely good for me!

  6. Lisa


    I realize this thread is a few years old, but I came across this page while searching “envelope systems”, and find your way fascinating.

    Since I’ve never done this before, I’m perplexed with one thing. I get paid twice a month. Unfortunately, almost all of my check is currently going towards bills, food, etc., hence the reason I am so interested in this system – to help me pay down my debt and follow a budget.

    With my paycheck direct deposited, and, as of right now, barely any breathing room with excess money between checks, how does one avoid going below the bank’s required minimum balance in your checking/savings account without getting penalized? My bank minimum is really low ($100), but I have been surcharged $15 in the past for going below that amount.

    I would never be able to pull out the majority of my money as cash to put in envelopes without a bank surcharge.

    Any explanation or help with this would be greatly appreciated!

  7. tk

    Just do it. I have used a version of this system for years and have set a couple of other friends on it recently. One literally had no extra money and bills adding up to more than she brought in. IT WAS TOUGH. Only take out cash from the bank that leaves the $100 minimum. For the first few months we had to limit the food category severely and things like entertainment, haircuts, etc. Some of those categories only got like $1.00 – $5.00 a month. But after a bit, we were able to catch up enough so that she was like 2 weeks ahead of her paycheck, so we didn’t have to go to the bank so often (so as not to take out more than the minimum). I am happy to say that she has paid off all credit cards and store bills and now has more to work with. We put some of the extra from those into savings (for emergencies) and to savings (for stuff she wants) and we’re able to fully fund those other categories that were so restricted in the beginning. In fact, she just paid cash for a used car and she was thrilled! You just have to make up your mind. In my friends’ case, she wanted to do it and tried herself but just didn’t have the discipline in the beginning so I was very involved (I kept her credit and debit cards for her and put the cash in the envelopes) until she started seeing results. Now she is able to do it herself. If you don’t have the discipline at first, ask a trusted friend to help you! The second person I am helping is a friend of the first one. When she heard about her success, she wanted to try it too. Blessings.

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