Author
LoansJagat Team
Read Time
10 Min
26 May 2025
Saksham, a 22-year-old college graduate, just landed his first job with a monthly salary of ₹35,000. Excited but clueless about managing money, he splurged on gadgets, outings, and online shopping – only to find his bank account nearly empty before month-end.
Frustrated, he confided in his father, who smiled and handed him five envelopes labelled Rent (₹8,000), Groceries (₹5,000), Transport (₹3,000), Fun (₹4,000), and Savings (₹15,000). "Stick to this, and you will never run out," he said.
Saksham was sceptical – how could simple envelopes fix his money troubles? But what happened next shocked him. Curious? We will uncover Saksham’s financial transformation in this blog. First, let’s understand – “ye envelope system hai kya cheez?”
The Envelope Budgeting System is an old and simple way to manage your spending. In this method, you divide your monthly income into different categories like groceries, rent, entertainment, etc., and create a separate envelope for each category. You keep a fixed amount of cash in each envelope for that category and spend only from that envelope. Once the envelope is empty, you stop spending in that category.
For example, suppose your monthly income is ₹50,000. You can create envelopes like this:
Category | Amount (₹) |
Rent | 15,000 |
Groceries | 6,000 |
Utilities | 4,000 |
Maid/Cook Salary | 2,500 |
Eating Out | 3,000 |
Miscellaneous | 2,500 |
Savings | 17,000 |
This way, you set a fixed cash limit for each category and spend within that amount. If there is money left in any envelope, you can either save it or use it for something else that is important.
In today’s digital age, instead of using physical envelopes, you can also use digital budgeting apps that help create virtual envelopes. But using actual cash often gives you better control over your spending.
If you want to manage your expenses and increase your savings, the Envelope Budgeting System can be a very effective method.
First, calculate your total monthly income. Then, divide it into spending categories like:
You can follow the 50/30/20 rule:
Example: If you have a monthly income of ₹60,000
Category | Percentage | Amount (₹) |
Necessary Expenses | 50% | 30,000 |
Discretionary Expenses | 30% | 18,000 |
Savings/Debt Repayment | 20% | 12,000 |
Create an envelope for each category and put the assigned cash into it. You can use different colours, for example:
Envelope Allocation
Category | Envelope Colour | Allocated Amount (₹) |
Rent | Red | 15,000 |
Groceries | Blue | 6,000 |
Transport | Yellow | 3,000 |
Entertainment | Green | 4,000 |
Savings | White | 12,000 |
Spend money only from the envelope of that category. If the envelope becomes empty, do not spend more in that category. This keeps you disciplined and prevents overspending.
At the end of the month, check your envelopes. If any envelope still has money left, move it to savings. If any category runs short, adjust next month’s budget.
Category | Budget (₹) | Actual Spent (₹) | Difference (₹) |
Groceries | 6,000 | 5,500 | +500 |
Entertainment | 4,000 | 4,500 | -500 |
Transport | 3,000 | 2,800 | +200 |
This review shows where you spent more or less, allowing you to plan the next month’s budget accordingly.
The Envelope System is a simple and effective way to control your spending. Whether you use cash or digital methods, this system can help you achieve your financial goals. You just need some discipline and regular reviews.
If you start using this system in your life, you will see how your spending comes under control and your savings begin to grow.
Suresh is a college student who manages his monthly ₹10,000 pocket money using the envelope system:
Category | Budget (₹) | Notes |
Food (Mess + Snacks) | 3,000 | Daily meals and snacks |
Transport | 1,500 | College bus and auto fare |
Entertainment | 1,000 | Movies, outings |
Mobile Recharge | 500 | Monthly mobile plan |
Stationery | 500 | Pens, notebooks, etc. |
Emergency Fund | 1,000 | Unexpected expenses |
Savings | 2,500 | For future use or emergencies |
Total | 10,000 |
If Suresh’s entertainment envelope gets empty in the middle of the month, he does not spend more in that category. He transfers any leftover money to his savings envelope.
In this way, the envelope system helps Suresh control his expenses and build savings.
Example:
Category | Monthly Budget (₹) | Notes |
Groceries | 6,000 | Cash envelope |
Rent | 15,000 | Online transfer |
Utilties | 3,000 | Auto-debit |
Entertainment | 2,000 | Cash envelope |
Emergency Fund | 2,500 | Digital savings account |
Subscriptions | 1,000 | Credit card auto-pay |
This table shows a hybrid approach, where both cash and digital methods are used. This way, you can maintain the discipline of the envelope system while also enjoying the convenience of digital payments.
If you find it hard to manage physical cash envelopes, you can use digital envelope budgeting apps like Goodbudget or YNAB, which help modernise your budgeting experience.
In today’s digital age, there are two main ways to do budgeting: physical cash envelopes and digital envelope apps. Both have their unique approach, and you should choose based on your lifestyle, financial goals, and comfort with technology.
This traditional method is useful for people who want to have physical control over their spending.
Category | Monthly Budget (₹) | Notes |
Groceries | 6,000 | Cash envelope |
Transport | 2,000 | Cash envelope |
Dining Out | 1,500 | Cash envelope |
Entertainment | 2,000 | Cash envelope |
Miscellaneous | 1,000 | Cash envelope |
Digital apps like Goodbudget, YNAB, and Qube Money are useful for modern budgeting.
Category | Monthly Budget (₹) | Notes |
Rent | 15,000 | Auto-debit |
Utilities | 3,000 | Linked to the bank account |
Subscriptions | 1,000 | Credit card auto-pay |
Savings | 5,000 | Digital savings envelope |
Groceries | 6,000 | Tracked via app |
If you want to take advantage of both systems, you can try a hybrid approach. In this, you use cash envelopes for variable expenses like groceries, and digital tools for fixed expenses like rent and subscriptions.
Based on your budgeting goals, lifestyle, and comfort level, you should choose between the physical, digital, or hybrid approach. No matter which method you choose, financial success only comes with consistency and discipline.
The Envelope System is a simple yet powerful way to manage your money and control spending. Whether you use physical cash envelopes or digital tools, this method helps you stay disciplined with your finances. By dividing your income into different categories and spending only what’s allocated, you avoid overspending and build better money habits.
One of the biggest advantages of this system is that it makes you more aware of where your money goes. If you prefer digital payments, budgeting apps can help you track expenses while keeping the same envelope principle.
If you follow the Envelope System consistently, you will notice your spending becoming more controlled and your savings growing over time.
It is a practical way to take charge of your finances and work toward your financial goals without stress. Start small, stay consistent, and watch how this simple method transforms your money management.
1. What is the Envelope System?
The Envelope System is a budgeting method where you divide cash into different envelopes for spending categories. Once an envelope is empty, you stop spending in that category.
2. Can I use the Envelope System with digital payments?
Yes, you can use budgeting apps like Goodbudget or YNAB for virtual envelopes. However, cash envelopes help control spending better for some people.
3. What if I run out of money in one envelope?
If an envelope is empty, you must stop spending in that category or adjust next month’s budget. This discipline prevents overspending.
4. How do I decide how much to put in each envelope?
Start by tracking your expenses for a month, then allocate money based on needs. You can also follow the 50/30/20 rule for budgeting.
5. Is the Envelope System good for saving money?
Yes, because it limits unnecessary spending. Any leftover money in envelopes can be moved to savings, helping you grow your funds over time.
About the Author
LoansJagat Team
We are a team of writers, editors, and proofreaders with 15+ years of experience in the finance field. We are your personal finance gurus! But, we will explain everything in simplified language. Our aim is to make personal and business finance easier for you. While we help you upgrade your financial knowledge, why don't you read some of our blogs?
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