Sticking to a budget can be one of the most difficult tusks to implement. Cashless transactions are gaining popularity and the tendency to over-spend has become a norm for many, with or without a budget.

There’s one budgeting system that might just work for you. I’m talking about the envelope budgeting system.

Unlike other budgeting methods, envelope budgeting is simpler to implement and more practical.

Simply put, envelope budgeting entails dividing your expenses into categories and assigning each category an envelope that will be topped up with a particular amount of money. 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 until  the next time you top up that envelope.

I run a weekly envelope budgeting system where I 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. This 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 situation.
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. At the end of the month or when the next budget cycle begins, refill the envelopes, and start again.

One advantage to this system is that if forces you to live within your means, an important aspect towards achieving financial success.  I must admit, at first it can get a bit cumbersome and you may be tempted to make small cuts from the other categories in order to finance a category that has drained out.

This system has in the long run helped me save plus avoid the hustle of living pay cheque to pay cheque. Give it a try then tell us how it works for you.

Watch out for tomorrow's post where I'll give you tips on how you can effectively implement this budgeting system through your cell phone.