The Envelope Method

A few weeks ago I wrote about how to go about creating a budget, but I didn’t address the methods of tracking that budget.

I believe the best way is using the tried and true envelope method. I learned the envelope method from my dad when I was a child, predating the prevalence of online banking and the widespread use of credit cards for every transaction. Every month, my dad would withdraw cash from the bank and split it up between envelopes labelled with different categories of expenses, like those discussed in my budgeting post. He would then use the cash out of the appropriate envelope to pay for any given expense until the budget for that category had been reached.

Of course, given how purchasing and payments have changed in the last 20 years, having envelopes of cash sitting around is neither practical nor advisable. The basic principle of that method, however, can be easily transferred to how you think about your money. If you set up your budget using my advice, you already have the “envelopes” set up because you were thinking about your money in terms of where you need or want to spend it. The process then becomes an exercise in categorizing your expenses as they occur, so that you can track what you are spending from each of your budget categories.

Depending on how simple your finances are, you may be able to set up a spreadsheet and track it manually. If your categories are complex, or if you have a large volume of transactions, it could be useful to search out an online tool or software to help you.

There are a lot of online tools and softwares available. Some of them are free and many of them will even link directly to your accounts to pull in your actual transactions. I would caution, however, against using a free budgeting tool and linking it to your accounts. When you are paying for a service, it is much easier to hold the company accountable for what they do with the information you provide them.

Whether you decide to set up your own spreadsheet or if you want to use a system online, but need help getting started, let me know! I’d be glad to help figure out what you actually need, so that you have a good basis for getting started.