Recently I was asked to outline how to set up your envelope budgeting. So this article will outline what you need and how to calculate the items for each envelope.
First you will need a list of all expenses in your budget. If you haven’t set up a personal budget yet you will want to do that first.
Then you will need one envelope for each expense item in your budget. Don’t forget you will also need envelopes for spending money (allowances), savings, personal care, etc. You need to have an envelope for ALL expenses you pay out. You can do a Miscellaneous for very small items, but, in most cases, you should have one envelope for each expense.
On each envelope, you will label as follows:
- The expense name (such as car payment, house payment, car maintenance, house insurance, each debt, groceries, gas, electric, etc.)
- The amount and timing of that expense (i.e. Monthly mortgage 15th $459.84 … House RE Taxes Annual January 30th $1,259.00, etc.)
- The amount you need to put into the envelope each pay period. See below for how to calculate this amount.
How To Calculate Your Envelope Budget
How to calculate this will depend on how often you get paid. So below is set up for the most common pay periods:
Weekly
Bi-Weekly (every 2 weeks)
Semi-Monthly (twice a month)
Monthly
For weekly paychecks, you will take monthly expenses, multiply by 12 and divide by 52. Take annual expenses and divide by 52.
For bi-weekly pay periods, take monthly expenses, multiply by 12 and divide by 26. For annual expenses, just divide by 26.
A semi-monthly pay period means you have 24 paychecks a year. So take monthly expenses and divide by 2. For annual expenses, divide by 24.
Monthly pay periods are probably the easiest, since you just use the monthly amounts as provided and divide annual expenses by 12.
For expense items that don’t fall in the monthly or annual payment categories, you will need to do a little extra calculation. First, you will need to figure out the annual amount for these odd expenses, then divide by the pay period type. For instance, let’s say you pay your car insurance 5 times a year at $200 each time. That’s $1,000 annually. You have a weekly paycheck, so you need to divide the $1,000 by 52 to get a weekly envelope figure of $19.23. Now, if you get an odd figure like this, round it up, make it $20 so you aren’t fiddling with change all the time.
What If You Have More Envelopes Than Money?
Well, if you run out of money before your envelopes are filled for that pay period, you have to reduce your expenses! Go back to your budget, and trim where you can… honestly!… don’t trim just to trim, you will only get further behind if you can’t maintain those amounts.
Check out these tips to help you trim expenses: