Understanding Envelope Budgeting
What is Envelope Budgeting?
Envelope budgeting is a straightforward method where you allocate money for specific expenses before you spend it. Each "envelope" holds money for a particular bill or expense.
Instead of physical envelopes with cash, we calculate how much to save from each paycheck.
How It Works: Save Gradually, Pay Confidently
The core principle: Instead of scrambling to pay $1,300 for car insurance all at once, you save $25 each week. When the bill arrives, the money is already waiting. This transforms overwhelming annual expenses into manageable weekly amounts. This is often referred to as "bill smoothing".
The Math Behind Each Envelope
For each bill, we calculate exactly how much to save from each paycheck:
Step 1: Count Your Paychecks
How many times will you get paid before this bill is due?
Step 2: Divide the Bill
Split the total amount across those paychecks
Step 3: Set Aside That Amount
Each payday, move that calculated amount to the envelope
Real Example: Annual Car Insurance
Result: When your insurance bill arrives, you have exactly $1,300 waiting in that envelope. The payment is already covered.
Getting Started: Practical Steps
1. Create an Envelope for Each Expense
Make an envelope for every bill, subscription, and recurring expense you have
💡 Tip: When creating an envelope, if you want to start saving from when it was last due, enter the last due date. If you want to start saving from today, enter the next due date instead.
2. Match Your Bills Account to the Required Amount
On payday, make your bills account balance match the "Required Amount" we calculate for you
💡 Tip: Don't use the "Next Deposit" amount. That's just a breakdown for you to see how much each expense costs you per paycheck. You need to match the "Required Amount" to account for any discrepancies.
3. Allocate Your Spending Money
Give yourself a reasonable amount for daily spending and entertainment
4. Save Everything That's Left
Put as much as possible into savings - this is where wealth building begins
5. Consider Investments After Emergency Fund
Once you have 3-6 months of living expenses saved, explore investment options
Frequently Asked Questions
How is this different from other budgeting approaches?
Most budgeting apps focus on arbitrary limits on spending categories. ie. $100 on entertainment. But what happens when you need more? You just move money around the categories in a pointless shell game. EasierBudget tells you the actual money you need to set aside for your real bills. Then you allocate some guilt-free spending money, and everything else is savings!
The really powerful part of this approach comes from knowing how much you're actually saving each paycheck. You can then calculate a firm savings or investment plan.
Do I need to track every transaction?
No!
EasierBudget tracks what you need to put aside for all your bills. You decide what to give yourself for discretionary spending. Tracking every coffee or bagel purchase is meaningless. What's important is you can accurately see how much 'spending' money you use each paycheck so you can consciously and deliberately spend and save your money according to your individual plan.
How many envelopes should I create?
The more the better.
The more accurately you list your expenses, the more accurate your budget will be. Don't forget about those irregular expenses that tend to surprise you:
- Car maintenance (every 6 months)
- Annual subscriptions and renewals
- Holiday and birthday gifts
- Property taxes
- School supplies or work equipment
Every expense you capture in an envelope is one less financial surprise. When these expenses come up, the money is already waiting instead of disrupting your budget.
What if I have irregular income or complicated pay schedules?
Key insight:
Your 'pay schedule' is really 'how often do I want to organize my money?' - not necessarily when you actually get paid.
Many people have variable income, gig work, or partners with different schedules. The solution is to choose a regular schedule that works for your life - weekly, bi-weekly, or monthly.
For example, if your income varies widely, you might choose 'monthly on the 1st'. Collect your income throughout the month, and then on the 1st sit down and allocate your funds.