Everything Goes in an Envelope

The phrase “make/stick to a budget” seems to be thrown out at college students almost as much as homework. We hear this phrase often, but many students do not know what a budget really is, let alone where to start. On top of this, teaching with biblical wisdom tells us to follow scripture. Proverbs 27:23-24 says, “Know well the condition of your flocks, and pay attention to your herds; for riches are not forever, nor does a crown endure to all generations.” This verse verifies that we should know where our money is going instead of keeping our money taboo.  Let’s begin with defining what a budget is. According to Investopedia, a budget is an estimation of revenue and expenses over a specified future period of time and is usually compiled and re-evaluated on a periodic basis. There are many different strategies behind budgeting which allows you to choose what strategy works for your personality. One great budgeting method is using the Envelope System.

Two principles that are common in budget systems are that any system is an envelope system in an essence, and no system will work without cash on hand. The basic outline of an envelope system is when you store your cash in separate envelopes to meet different categories of expenses. This could either be a high-tech software, basic spreadsheet, or actual envelopes… the principle is still the same. A few examples of what some of these envelopes could be are utilities, gas, clothing, gifts, allowances…etc. After your envelopes are created, you must decide each dollar amount and put that amount into each envelope. After this, you are only allowed to spend what is in the specific envelope for each transaction.

In order for a budget system to work correctly, you must be able to answer “How much do I have left to spend in each category” at a moment’s notice. Along with this, at any time during the month or year, you should be able to review your finances and know how you are doing against what you planned to spend. A great example of this has to do with utilities. Let’s say you budget $300 per month in utilities, but the winter months come around and you end up spending $400 in January. To fix this problem, you must rely on the 2nd principle that is common with budgets which is that no system will work without cash on hand. This means that if you are trying to stay on a budget along with living paycheck to paycheck, you will always fail. This is because not all expenses are linear. You must have excess cash to pay for that extra $100 that you didn’t plan to spend on utilities, or that flat tire you got over the summer. Some people consider this an emergency fund. Whatever you like to call it, be sure to have one built up to a comfortable amount as you work on your budget goals.

A few additional techniques to help with this are listed below:

  • Never use credit cards unless you already have money allotted in your budget to pay for the items (pay the card off every month and be aware of the risks associated with using the card(s))

  • Keep your budget system as simple as possible so you don’t get stressed

  • Assign responsibility (create accountability between you and a spouse/family member)

  • Use one account for married couples (If you use “his” and “hers,” understand that disputes could occur)

If you have any other questions about this system, please make an appointment with one of the NEXUS Coaches at the link below or check out Your Money Made Simple by Russ Crosson.