Have you heard of the envelope system for managing your money? The concept is very simple. You create categories for your spending, such as food, house payment, utilities, etc. Then, you label envelopes with the names of your categories. When you acquire money, you split it into the categories. When the money in the envelope is gone, you must stop spending.
This system is not new, yet it is still widely in use because, quite simply, it works. I’ll be explaining how I use more of a digital envelope system in the future, but today, I’d like to tell you about my very first “envelope system.”
When I was a teenager, I did quite a bit of babysitting. Once parents found out I was responsible, and paid attention to their children rather than talking on the phone, I was in high demand. I wanted to manage my money, especially since I was making $20-30 per job. In the ’90s, that was huge!
My first introduction to the envelope system was through a homeschool product called “Stewardship Street,” which I highly recommend. The concept was simple. Children built little houses out of recycled milk cartons, each house representing a category like saving or giving. They could put their coins and dollars in the little houses as a visual reminder to manage their money, rather than spend it all on toys. I wasn’t about to make houses out of milk cartons as a very crafty teenager, so I improvised. I made fancy plastic canvas houses with hinged roofs. Seven little houses lined the top of my dresser, and each time I came home from a babysitting job, the adventure began. I had set percentages for each category, and now was tasked with dividing the money into the little houses by the percentages. Making change to get the right percentage into each house was sometimes an incredible challenge! But, it was a very useful tool to help me learn to make wise decisions with my money early on.
I use a more grown-up system now, but a visual and hands-on tool, like little houses, is a fantastic way to teach children proper money management. While writing this post, I actually came across some patterns similar to the ones I made 30 years ago!
No matter what “envelope” you use, today is a great day to start using the envelope system. Start by determining which categories you need. My current categories are:
- Farm, pets
- Car repair
- Home and heating
- New car
- Emergency fund
I also sometimes add temporary categories when we are saving for a particular thing. What categories did you come up with? Don’t get too detailed. Any good system must be simple to maintain. Comment below with your categories and questions.