Envelope budgeting is a popular style of budgeting that helps you track exactly how much money you have available to spend in each budget category.
Income is distributed (or budgeted) into separate categories as and when it's received. Any amount leftover in the envelope simply
carries over (or rolls over) to the next period. At any time, you can see the "Available" amount of money in a budget category
to know how much money you can spend ont that category.
Envelope budgets are great for categories that you want to save for over a period of time, or categories with uneven or sporadic spending.
- Travel is typically a sporadic expenditure. You can budget a fixed amount (say $200) every month and simply check the available amount to see how much you have saved up at any time you plan to take a trip.
- Utility bills are a variable expenditure. You can budget a fixed amount every month and allow any surplus/deficit to rollover.
- If you want to make big purchase down the line (say the latest iPhone worth $1000), you can start budgeting a small amount ($20) every month from your income. That way you won't allocate it to any other expense. At any time, you can check the
available amount in the category to see if you have saved enough to make the purchase.