The Beginner’s Guide to The Envelope System

Don’t let the hassle of budgeting stops you from saving money.

I have seen a couple of friends left with nothing by the time it’s the end of the month.

Even though they might earn more than S$ 80,000/year, they tend to pay their bills first and spend the rest to fund their life.

When you do budgeting, you get to see how much you really spend in each category.

I used to track all my expenses. It’s not easy, I know.

The process can be very tedious – especially if you need to log down all the expenses.

For those who have attempted to track expenses, you might also realize that such method doesn’t really help to look forward.


You track the expenses, yes. But do you ever look back and modify your spending habit?

Honestly, I never. I track, look at the monthly expenses and move on to next month.

This is why I feel that The Envelope System comes in better.

Once you have set a budget (truthfully) for the category, you spend according to that category. If it is low in the month, you will know.

Recently, I have adopted the system. It works better than just tracking my expenses. I start to know my spending habit and I stopped spending when I know I’m hitting the limit.

This helps me to spend less and earn more – the two fundamental methods to be richer.

I will explain everything I know for you to kickstart with this system so you can also start to save more like I do.

1. What Is The Envelope System?

The envelope system can be simply explained in the following image:

The Envelope System - How It Works
The Envelope System – How It Works

Every month, you divide your income into each budget category – like an envelope.

Then you use the money in each envelope to spend in each category.

When you have nearly emptied the envelope, you will know and you can attempt to spend less.

For example, instead of taking Taxi, you can choose to take MRT.

You can also make money in the envelope fluid.

Let’s say you have spent too much on expensive food this month but you have not spend a single cent to take public transport. You can shift some budget to the formal envelope like this:

The Envelope System - How It Works
The Envelope System – Shift money from one budget to another

As you shift from one envelope to another, you are still spending within your budget.

This is generally how the envelope system works.

2. How To Decide A Budget

Deciding a budget is an art. There are a few ways of doing it.

a. 50/30/20

The 50/30/20 rule is very popular because it is very easy to follow.

The 50/30/20 Rule

Basically, you use 50% of your income on needs, spend 30% on wants and save 20% of your income.

I agree that this is easy for a beginner to follow. If you are new to budgeting, this can help to shape your category. Then you can iterate later.

But I feel that this is not very volatile.

Let’s say you get a promotion this year. Your monthly income increases… let’s say 10%.

If you continue to follow the rule, you will save more and spend more. This should not be the correct way.

When you earn more, it does not mean that you should spend more. Instead, you should put the money to good use (e.g. investment).

b. Look At Historical Expenses To Budget

I track expenses in the past.

Using the past records, I can effectively budget each category.

Not all of us can have a concrete idea of how much we spent in each category.

For the first few months, you have to truthfully adjust the budget so that it is comfortable and reasonable for your future spending.

There’s no point setting only S$ 200 per month for eating-out if you always spend more than S$ 300.

Once you hit a constant (and comfortable) state, you can keep to the budget. Of course, it will not be right if you continue to increase your budget every month based on your spending on the previous month.

You should plan to budget to spend less, not to spend more.

If you do not have a habit to track expenses in the past, you can do a quick budget by using an excel sheet like this:

How To Budget
How To Budget with Cash Flow Sheets

Your categories are definitely different from mine. Adjust and make it like yours so that you can fill up some initial values.

3. How To Steal?

As I mentioned previously, you can steal some money from other envelopes.

There are some websites that say stealing is bad. In my opinion, I feel that it is alright to move money from one to another as long as you do not add additional budget from your savings.

Hence, you must make sure you steal from the right envelope.

If your phone bill is always fixed per month and you needed more budget for your movie, you shouldn’t move the budget from phone bill to movie.

Instead, you should rob from those envelopes that are variable (e.g. clothing).

4. How To Track?

The hardest part of the entire process is to track your expenses every day.

Budgeting is almost a one-time effort. You budget once and iterate a few times. Then, you can start to use the same budget until you needed a new budget category.

Tracking, on the other hand, is almost an everyday effort.

Whatever you spend, you will need to track.

In the past, the envelope system is physical – you have real envelopes and cash. Hence, you don’t really have to track the expenses. You just take whatever it is in the envelope to pay the bill.

Now, everyone is using technology to keep track of their expenses.

In this case, you will need to key your data somewhere – an app or even an excel sheet.

For me, I’m using You Need A Budget (YNAB). There are other apps like GoodBudget that can also do the same deed.

I like YNAB because it’s intuitive and easy to use. Instead of other apps that I have tried, it is one of the apps that slap the envelope system right in the face.

Instead of tracking my expenses across different channels, I only track how my income is broken into the different budget category.


YNAB - Example of the category and budget
YNAB – Example of the category and budget

It may be really tedious to track every day. But once you are used to the momentum, you will feel weird to not track your expenses each day.


All in all, budgeting is important.

You get to really see how much you spend in each category, and you can control your habit when you have a way to see.

It may be tedious but it is definitely a good start for everyone who wants to save some money for the rainy days.

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