F&M Bancorp : Is the Envelope System the Key to Controlling Your Money?

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You're being intentional and telling your money where to go each month with your trusty budget in hand. Way to go! But somehow you find you're still overspending in those tricky areas of your budget like dining out, shopping for groceries, and buying new clothes. It's easy to get tripped up without a little help. What's a bright-eyed budgeter to do?

It's simple-you can keep that overspending in check with the envelope and clip systems!

Your Questions About the Envelope System Answered

What makes the envelope system so different?

It's the end of the month and you're looking over your bank account. But wait-that balance is way lower than you expected. You're stuck paying overdraft fees plus making sure all your spending comes to a screeching halt. Does this sound familiar?

One of the reasons you overspent is because there's nothing telling you when to stop. Here's where the envelope system comes in-it's one more tool in your arsenal to help you stick to your budget.

The idea of using an envelope system to help control your spending isn't anything new. We actually got the idea from your great grandmother's way of handling money. Believe it or not, people used to always depend on cash to control their spending. But these days, very few people even carry cash thanks to the card-swiping culture we live in.

How does the envelope system work?

Using the envelope system correctly starts with having a budget. And making a monthly budget is a cinch with our free budgeting tool, EveryDollar. Once you have a solid budget in place for the month, you use the envelope system to pay cash for different categories of your budget (like food, gas, clothing and entertainment), and you keep that cash tucked away safely in the envelopes. Anytime you want to know how much money you have left to spend in your budget category, just take a peek in your envelope.

Let's say you've budgeted $500 a month for groceries. When you get your first paycheck of the month, take out $250 from your bank account and put the cash in an envelope. On that envelope, write 'Groceries.' When you get your second paycheck, do the same thing again, and put that $250 in the envelope. That's your $500 food budget for the month.

Pretty simple, right? And you don't need to use the envelopes for every line of your budget-just the places you tend to overspend. Here's the most important part: No money comes out of that grocery envelope except to pay for food at the grocery store. And if you go shopping for food and leave the envelope at home by mistake, turn your car around!

Make sure you take enough money with you to cover your groceries for that trip. If you take $150 cash and your total comes to $160, take some things out of the cart and put them back. It might seem hard, but it's better than going over in your grocery category and throwing off your whole budget for the month! Put any cash you get back from the transaction in the envelope for next time. And remember, once you've spent all the money in your envelope, that category is done for the month.

The envelope system works because it forces you to be intentional about where and how you spend your money. You're changing your habits one step at a time!

What's the difference between a starter envelope system and a deluxe envelope system?

The Starter Envelope System is simple and straightforward, but it also packs a powerful punch. It has everything you need to get your budget in shape and stay accountable. You'll get eight envelopes to help you start managing your cash.

The Deluxe Envelope System has a little more bells and whistles to it. You'll still get envelopes for your cash, plus a space to hold your debit cards, a memo pad, and a zipper pouch to catch any loose change.

Don't Forget the Clip System!

If all this talk of envelopes just feels a bit too clunky, allow us to introduce you to the envelope system's more convenient sibling: The clip system. It's a great way to physically see the cash you have on hand for specific areas in your budget.

What is the clip system?

The clip system is the same concept as the envelope system, except you use the clips to divide your categories instead of envelopes. You can still only spend the designated amount that's in the clip (just like the envelope). And once that money is gone, it's gone. You can even get fancy using different designs or colors to help you designate which category each clip belongs to.

But unlike the envelope system, the clip system might fit in your wallet a bit easier. Rachel Cruze saw the need for a cash system that would be easy to take along with you. She created her wallet specifically to help you budget with the clip system.

Rachel's wallet is the perfect pairing of style and function. It comes with several colored-coded clips to help you easily group your money into categories.

Does the Envelope System Really Change My Money Habits?

Yes! The whole purpose of the envelope system is to retrain your brain on how to handle money and help you stay true to your budget. Doing a budget isn't magical, and creating one doesn't make you stick to it. But using cash and the envelope system can help keep you focused on your monthly plan.

Paying with cash actually feels different than paying with a card. Using cash activates the pain sensors in the brain when you feel it leaving your hands. And according to a study on spending behavior, swiping a card actually encourages you to spend more.⁽¹⁾ But when you use cash, you'll naturally find yourself shopping around, looking for deals, and wanting to spend less.

If you need extra help keeping yourself in check when it comes to entertainment, or clothes, or any budget category, the envelope or clip system is your answer!

And don't worry if it takes you a little time to adapt to using the envelope system. It can take a while to get used to relying on the envelope system. You'll get better at it the more you use it!

'The envelope system really works! I thought my spending wouldn't change once I began to use this system, but it has. I actually began to save more money each month than I ever imagined.' - Erica

Envelopes and clips might seem small, but they are powerful weapons in the fight against overspending. They can help you manage your money better than you ever have before. Put the envelope or clip system to the test and watch how quickly you'll become intentional about how you're spending your money!