Budget Your Money Through The Envelope Method

Updated: January 9, 2024

Do you have the habit of spending more than you earn? Are you finding it hard to get out of bad debt? Is it difficult to live within your means?

If so, then maybe you should start a personal budget system to account for your monthly expenses.

There are many ways to do this but one of the most effective and often talked about methods is the Envelope System.

It’s easy, practical, and very effective. Here’s how to do it below.

The Envelope Budget System in Eight Easy Steps:

Step 1
Start by tracking your daily expenses. It just takes a few extra minutes each day.

Step 2
List down all your monthly expenses. Consult your daily expense notebook to check some items which you might have forgotten.

Step 3
Group the list into categories. Make sure that you include everything.

You can start by grouping them into general categories such as Shelter, Food, Clothes, Utilities, Transportation, and Personal.

You can also choose to further divide them into subcategories until you have a comprehensive map of where exactly your money goes every month.

Step 4
Get some envelopes and label each of them with the expense classifications you defined. When you’re done, add one more envelope and label it, Pay Yourself First.

Step 5
Next, create a budget. Distribute and allocate your current income into the envelopes. Make sure that you fill in the Pay Yourself First envelope before the others.

Step 6
Keep your envelopes in a safe and secure place.

Step 7
Plan your day and bring the envelope which you might need for your expenses.

You can choose to bring just a certain amount and not the whole envelope for security purposes. For example, if you’re planning to go to the mall with friends, instead of bringing your Food Envelope, which usually contains a large sum, just get a few bills. Do the same for your Transportation and Personal envelopes.

Step 8
At the end of the month, whatever is left in the envelope is carried over and added to the next month’s budget.

That’s why it is important not to spend everything in the envelope so that you can save up for bigger purchases and unexpected expenses.

For example, if your monthly clothing budget is just P1,000, then you will be inclined not to spend it if you want to buy a P2,000 pair of jeans next month.

Additional Notes:

  • Put your receipts into the envelope from where you took the cash from. That way, you’ll be able to easily track exactly where your cash was spent on.
  • Instead of carrying over what’s left towards next month, you can also choose to deposit the money left into your savings account.
  • It is recommended that you use your income from last month for your current month’s expenses. All your earnings for the current month should be kept and saved for budget allocation next month. If this is not possible then try to adjust your spending habits until you have achieved this.
  • Try not to “borrow” money from other envelopes. You should discipline yourself to spend the allocated money only for its assigned category.

Remember that this is a dynamic process, the Envelope System entails constant planning, tracking, analysis, and adjustments to your budget allocations and spending habits until you have successfully gotten yourself out of debt and be comfortably living within your means.

Lastly, the best part of doing this envelope system is that you don’t have to worry much about saving money because your Pay Yourself First envelope is automatically doing that for you.

Alternatives To The Classic Envelope System:

You can alternatively choose to keep your income in the bank and use paper money to represent your cash allocations in the envelope. If you have an old Monopoly board game, then this shouldn’t be a problem.

Cutting out pieces of paper and writing down denominations is also a viable option. Just be sure to take out the paper money at the end of the day to represent your daily expense and be sure to account for the remaining budget in the envelope so that you won’t overspend in that category.

You can also choose to make a worksheet on your computer to make your virtual envelopes. I personally think that this is the best way to practice the Envelope System because it is secure, practical, and more comprehensive because it can do your computations and analysis automatically to save you time.

BONUS: Download a FREE Budget Worksheet

What to do next: Click here to start your financial journey with IMG Wealth Academy
Photo credit: ollily


  1. Hi You are a very talented writer. Nice you have this website as it helps people learn what we didn’t acquired in school. Can you help me what to do when it is only my husband working and his salary goes to a lot of expenses. It’s always never enough especially, we have extended families who depend on us? We are always in debts coz there is nothing to budget? Please enlighten me.Thank you and God bless. Cecile

  2. @Nicely
    You’re welcome!

    I’m not a qualified financial adviser but here’s what I would suggest. Call a meeting with your family and the extended members, let everyone be aware of your current financial situation. Don’t be shy and be honest.

    Next, try to come up with ways on how everyone can help financially. They can sacrifice on some expenses while others can find part-time jobs.

    Fixing your family budget requires cooperation from everyone. You need to be strict with the people who depend on you. They have to do their share in either saving money or getting more money for the household.

    Good luck and God bless!

  3. Nice system Fitz. I have developed my own tool to tracking personal expenses and automated the computations ><. Took awhile but its catered to my lifestyle. I included items from taxes (yes I know how much the government is milking my blood and feel that my SSS will not even be 1% of total amount I have given the gov’t) to salary, investments, stocks, expenses.

    There are a lot of free online tools out there, but I only need simple math.

  4. I used Piggy Banks which a) helped me setup my original budget b) connects to my bank directly so I can still use my credit/debit cards and c) it updates itself automatically while not storing my bank password in someone else’s server. Oh, and best of all, its absolutely free!


  5. I just want to say that your site has been a great help to me. The Budget Your Money Through The Envelope Method article, especially the excel file that I was able to download at the end, has finally updated my very ancient accounting system. The new excel program is definitely a welcome alternative. Another thing is your million pesos calculator. It helped me find out how much more income do I need to earn to reach my goals faster. And most of all, I’d like to thank you for inspiring me to finally start an online journal to record my own journey to financial freedom and abundance. Please keep those inspiring articles coming!

  6. Instead of using the piggy bank I put the change in my wallet, you wouldn’t believe how often it comes in handy and if you dont mind counting your pennies it adds up. I pay toll fees with my change weekly. Save your cola cans and bottles, there was an article of a woman sending her two kids to college on saving cans.

  7. Your site is really helpful! It took me years before I actually embraced “The Art of Planned Spending” haha! And it sure helped me a lot in managing my funds.

    Thank you!

  8. Microsoft Money is a good tool to easily track income, expenses, savings, manage and keep track of payments (investments,debts, etc.; all categorized, too 🙂

    [email protected]

    “Do not wait for the time when ‘freedom’ means breathing clean air.”

  9. I also maintain a ‘finances worksheet’ in my PC but yours is more detailed and organized. As breadwinner, I only get to put little money into my savings account. Based from my experience, a big portion of my income goes to the misc. expenses of my two younger sisters (college students) and that’s where my problem starts. I allot money for misc. expenses but still, it’s often insufficient. Hopefully, when my brother gets work soon, things will change for the better. I’m keeping my fingers crossed. 🙂

  10. Nice system Fitz. I have developed my own tool to tracking personal expenses and automated the computations ><. Took awhile but its catered to my lifestyle. I included items from taxes (yes I know how much the government is milking my blood and feel that my SSS will not even be 1% of total amount I have given the gov't) to salary, investments, stocks, expenses.

    There are a lot of free online tools out there, but I only need simple math.

  11. I love the envelope method but who carries cash any more? I charge everything on my cash-back credit card. There’s a free phone app that simulates the envelopes so I can see if I have enough in my ‘fun money’ for that latte at the end of the month. The basic version has plenty of envelopes for my typical family. It’s a great tool if anyone is interested (sync’s to the cloud so my wife and I work off the same envelopes), called EEBA in the Market or eeebacanhelp.com.

  12. Good day sir Fitz,can you make you’re post with friendly way to print it because i wanted to share it to my colleagues who have no time to search the net…tia..more power to you sir…

  13. Hi Vincent. I’ve added a “Pay it forward:” line so it will be easier to send the articles via email to a friend and print them fast from your computer. I hope that helps. Thank you for sharing them. 😀

  14. Yes, having a personal budget system to account for your monthly expenses is really effective when managing your personal finance. Deferent people follow different methods. I normally use to list down my monthly expenses and having an account of my daily expenses it has helped me to control my expenses. Ant I think if I apply the envelop system, it will be more effective to strengthen my financial situations and save money accordingly.

  15. Hello po, sir fitz. I wish I was able to read this before, I think It’s too late for me now, I mismanaged my finances and now suffering from the consequences. I’m losing hope that I’ll be able to breathe freely again from debts. I am a government employee, married, with 3 children. My husband is a private employee with minimum income, both of us comes from a poor family and because we have jobs, our family members, both sides seek assistance from us in times of financial difficulties that sometimes I have no option but to avail salary loans from financing firms until it reached to the point that my monthly net salary in my payslip now is only 3K+, that is not sufficient for our daily needs and to cope up with all the expenses, I borrowed money from individuals with 5% interest monthly, I’m a good payer naman hanggang nagkapatong-patong na po utang ko dahil sa porsyento, kasi para mkabayad sa isa uutang ako sa iba hanggang sa lubog-lubog na po ako ngayon sa utang and now po financial freedom is parang a BIG dream nlng po saakin. I’m doing all possible way po, super tipid na po ako, business dito business doon,wala nman po akong mahiraman ng capital na walang interest. I’m now experiencing sleepless nights. Prayers nlng po sandalan ko. If ever, I could only bring back past, I will surely follow this envelope method..Thank You po and GOD BLESS.

  16. i use this android app called EEBA budget envelope. you can set monthly envelops where you update the certain budget and list all your expenses. it has a running balance so would know how much is left on a certain envelope. i also use this to manually track my bank account transactions everytime i do one so it’s almost always updated and you are aware of every transactions or expenses you made. it’s safe coz you don’t store any info about your account.

  17. Thank you! Sir Fitz….
    I’ve been a constant visitor on your blog. I hope there’ll be more people will be inspire with your works and talent.
    God bless you!

  18. […] Envelope method is the combination of doing number 1 and 2. With your expenses projected, and cash available, you can segregate the amount of cash you will be needing at a certain time. Say for example, in a week you can keep your grocery money, bills money, gas money and others in envelopes, properly labeled with the fund name and the date of the budget. Seeing where your money go and how much of it goes to your needs will keep you out of debt and within your comfortable budget. […]

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