Earlier this week I showed you step by step how to create an envelope budget system.  One of the keys to a successful systems is being able to modify it knowing that it’s not going to be perfect on day one.  Today I’m going to walk you through a few things that you can do to make sure your envelope budget system continues to work for you through an ever-changing environment.

Keep Track of Unplanned Spending

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The first rule you must follow in order to manage your envelope budget system effectively is to make sure you gather the necessary data while you’re using it.  One very important piece of information is how much you actually spend.  I like to keep a spending log of all expenses that are unaccounted for in my budget.  This can be applied to the envelope budget system as well, since in order to make it work better for you next time, you should account for what you spent this time.

As you’re keeping track of these expenses, you should note whether or not it’s a one-time expense that you didn’t plan for, or if it’s something that you overlooked in your recurring budget.  If it’s something predictable that you can plan for in the future, let’s make sure we make a note of that for the next pay-period.

I try to keep track of my unplanned spending by filling up a list for a month or so…then clearing out the list after I’ve adapted my system to account for the expenses next time.

Adjust The Amounts

Ok, there’s two important things to look for in each category when you get to your next money-stuffing cycle.  (I do mine every 2 weeks, some people do their every month.) 

1. How much MORE you spend than what you had (if you had to),  or
2. How much you have left.

Now, adjusting the amounts of your envelopes is really a function of modifying your budget.  So, first and foremost you must make sure that you’re balancing your budget as well as part of this process.  You only have so much income, and it’s got to cover all of your expenses.  What we’re talking about doing here is just adjusting the amounts between the envelopes that you ACTUALLY have room for in your budget.

The idea here is to simply go down the spending log that you created for this entire budget cycle and change the amounts accordingly.  There’s some rules to follow here:

Photo by drocksays

1. If you went over and have to raise the amount on a category/envelope, then you have to take that money out of something else.  That something else can be another envelope that you reduce the amount on going forward, or it can be an adjustment in your overall budget to use more for the envelope system.
2. If you have money left over, stop and think about the expenses in that category.  Were they accounting for expenses that aren’t regular and require you to build up a balance within the envelope?  Must you save up enough to pay for one big bill at the end of the year with the money in that envelope?  If so leave it alone.  Otherwise, you can consider lowering the amount and using that money somewhere else.
3. Don’t stress about getting the PERFECT amount this time just as it didn’t have to be perfect the first time!  This is a cycle.  We’re going to continue to change it over time, not all at once…right now.

Follow these rules and you should manage to end up with a pretty ideal set of amounts after a few cycles.  We’ve actually been able to find places where we realized we could cut back pretty easily after watching the amounts and thinking through them more carefully from month to month.

How To Overcome Miscalculations During a Pay-period

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Analyzing everything in retrospect is easy enough, but what about those times where you’re just out of money in a category before it’s time to put more money in it?  Well, I’ve got a couple of suggestions for how to do this that we’ve tried.  I think they both work pretty well, but after trying both we liked one better than the other.

The first method that we tried initially is to create a short-term ‘Miscellaneous’ category.  We tried putting lower, barely-get-by amounts in each category, then putting some money in the misc category that could be utilized as the overflow in case we went over in any other category.  This was helpful at first because we weren’t sure how much money we were going to use in some of them.  It got so small after a couple iterations that we just wanted to get rid of it.

Another method that we’ve now been using that we like so far is to just start each category with slightly higher amounts than we think we’ll use.  If we end up going over in any category, we’ll either use some of the unused portions of other categories, or dive into the emergency fund to make up the difference until we can replace it the next pay-period.  It really depends on the reason for going over budget and how much it’ll cost.

Either of these methods is fine, but the biggest catch-all method is to use the emergency fund for any oversights every time and replenish it at the next payday.  However, we’re trying to avoid that at all costs and still manage to run an envelope budget system as close to our budget as possible.

The key with this system, as with your overall budget, is to stay flexible.  It is possible to be super-strict with your habits and learning to only spend within your budget using a defined envelope system, but learn to keep the flexibility in the system…not in the spending behavior.

I’ve armed you with enough material to get your own envelope budgeting system started, and enough to help you keep it going through the changes in your budget over time.  As always, I welcome any tips or suggestions any of you have that could be applied to evolving your envelope budgeting system.  Share them with the rest of us in the comments!