Envelope budgeting has traditionally been one of the simplest, yet most effective budgeting methods. Cash was divided among separate envelopes designated for specific spending categories – groceries, mortgage, and entertainment. Purchases in those categories were paid for using the correlating envelopes. It was simple to track where money was going, how much was left, and how long it needed to last. However, in today's hi-tech, nearly cashless society, the paper envelope system has become unrealistic.
 
In order to accommodate today's nearly cashless society, a number of budgeting systems have been introduced, but many of them use after the fact reconciliation methods. You can't make informed spending decisions when you don't have the real time information of an envelope system.  
 
Even with the significant advantages of the envelope budgeting system, it is only as good as your determination to use it. Meticulous tracking will only prove successful if you are prepared to guide your spending decisions based on the information the envelope system provides. 

Success will ultimately come from your commitment to spend less than you make. Let's quickly review the envelope method of budgeting:

• Set money aside before spending is required
• Spend from how much is left
• When you run out, you must make a choice
• At the end of the period, what's left is savings

Only when you partner envelope budgeting with persistent execution of the success cycle, will you have a system that really works. The success cycle is made up of four steps:

• Plan
• Track
• Compare
• Adjust

Choosing an envelope budgeting system
Finding a tool that is right for you is vital to ensure your long-term success. The 4 basic categories of envelope balancing systems are:

1. Cash
2. Paper ledger or computer spreadsheet
3. Computer-based envelope system
4. Combination of these

Cash-based envelopes
The most basic approach to implementing the envelope principles is using a cash-based system. Income allocation and tracking your spending are both very straightforward with cash. 

If you have $100 in your clothing envelope and make a $60 purchase, it's easy to see that you only have $40 left. However, because it is more difficult and inconvenient to make all payments with cash, many people combine a cash-based envelope system with a system that can handle the management of non-cash transactions.

Paper ledger or computer spreadsheet
Using a paper ledger or computer spreadsheet system allows you to track all types of spending. This approach functions similarly to the cash-based envelope system, with a few adjustments. Instead of allocating actual cash to spending envelopes, you will be creating spending accounts that are essentially virtual envelopes. Your cash will stay in your bank account, but you will allocate it to your spending accounts for the purpose of tracking your spending and determining the balance remaining in each spending account on a daily basis.

Computer-based envelope system
Perhaps the easiest envelope system for most is a computer-based, or online system such as Crown™ Mvelopes®. This system will automatically track your transactions. For the example that was used above, you simply assign the transaction to your clothing spending account. The system will automatically update the balance remaining in that account for you. You will know exactly how much you have spent, how much you have left to spend and how long it needs to last.

In addition to the above, the right system will help you complete each of the following:

1. Create a monthly spending plan.
2. Set up your spending accounts.
3. Create your income allocation plan.
4. Set your initial spending account balances.
5. Ensure your spending accounts and bank accounts are balanced.
6. Allocate your income to spending accounts as defined in your funding plan.
7. Automatically track your transactions.
8. Assign your transactions to the appropriate spending accounts.
9. Split transactions between spending accounts.
10. Set aside money for credit card purchases.
11. Complete a monthly review and make adjustments.
12. Generate important reports, including spending patterns and account balances.

It's about choices, not restrictions
One of the most common complaints with budgeting is the idea that budgets become restrictive and frustrating. People don't like to feel like they cannot make purchases when desired. However, in reality, as you spend beyond your income, your spending choices become increasingly restricted. 

The envelope system allows you to occasionally spend beyond the current resources in a specific envelope. You can simply draw from another envelope, knowing that you'll have less to spend from that envelope as a consequence. 

Most people are very successful at making sound purchasing decisions when they know how much is left to spend. But ultimately, your success in making smart decisions will depend on your resolve to live within your means. 

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