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every month, you take out cash for the variable expenses each month. These variable expenses include groceries, spending money, incidentals; even gas for your vehicles if you'd like. The fixed costs would be items such as rent/mortgage payment, utilities bills, phone bill, etc.

We budgeting $110 per month each for spending money (~$25 per week), so we pull out $220 on the first of the month, put $110 into each of our "spending money" envelopes. I know that I can't spend more than that, so I have to be careful the entire month not to eat out any extra times than I budgeted. In fact, I started realizing that if I didn't eat out at all one week, I'd have extra spending money.

I started saving the extra money I didn't use from the envelopes and created another envelope under my sock drawer. After a year or so of the envelope method, I cashed in $850!

Once you run out of money in the envelope, you run can't spend any more on that specific expense. For example, if you're only at the 20th of the month and you have $20 left in your grocery shopping envelope, you'd better start shopping frugally.

The biggest problem encountered by people who use the envelope method is that when they run out of money they still use their debit or credit cards. If you think that might be a problem, leave your plastic in your sock drawer.

While everyone has different methods of budgeting that they prefer, this has been a successful option for many people I know. But as with any method, you have to be disciplined and committed to living on a budget!

Learn more about this author, Barry Tadmore.
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