I used to be a victim of overspending on cash and never managed to stick to my budget. In spite of the fact that my budget indicated that I had room for savings, I still found myself being forced to live pay cheque to pay cheque with no savings at the end of the month. I must say that was a very discouraging period of my life as it clearly showed that I was not in control of my finances.

Being driven by the desire to nurture a saving habit, I tried out different methods of managing my finances, and that was when I stumbled upon the Envelope budgeting system. Like any other budgeting system, if called for some level of self discipline but unlike the others, it is more practical as it involved the actual handling of hard cash.

Simply put, envelope budgeting entails dividing your expenditures into categories and assigning each category an envelope that will be topped up with a particular amount of money at either the beginning of the month or at the beginning of the week, depending on if you are running a monthly or weekly budget. You will be forced to limit your expenditure on the different categories to the amount you have in each envelope and when an envelope is empty then expenditure on that category is over for that month or week and it will have to wait for the next top up.

I personally decided to limit my weekly general expenditure to KSh 1, 000, which I have split the into KSh 100 denominations. I carry the envelope with me and before I buy anything I first check on the balance and that has taught me to be accountable and at the same time prevents me from impulse buying. Considering the fact that I spend more during the weekend, I try to ensure that I have at least KSh 500 in the envelope on Friday and so far I have managed to achieve that.

How the system works:

1. First you have to create a budget that reflects your current financial situations.
2. You will then divide your budget into areas of spending; this could include food, entertainment, clothing, etc. then create an envelope for each category.
3. Fill the each envelope with the amount you have allotted to that particular category.
4. Pay for your purchases out of the appropriate envelops – using the food envelope for food purchases and the entertainment envelope of your entertainment expenses.
5. Once you have spent all the money in a given envelope, you are done spending for that category, and you should then refrain from making visits to the ATM to withdraw more money.
6. If you have any money left in your envelopes at the end of the month, add it to your savings or use it to pay any of your debts.
7. Refill the envelopes, and start again.

The biggest advantage to the envelope budget system is that if forces you to live within your means, an important aspect towards achieving financial success.  Though I must admit that at first it can get a bit cumbersome since you might be tempted to steal or make small cuts from the other categories in order to finance a category that has drained out, though at first there will be room to tweak your categories allocations until you arrive at numbers that work for you.

This system has in the long run helped me save plus avoid the hustle of living pay cheque to pay cheque. Come on, why don’t you give it a try then tell us how it goes?