Envelope budgeting

The split happens at the moment the money arrives. A paycheck is divided in full among the envelopes, so together they hold the paycheck and nothing sits unassigned. That is what separates the method from a budget written as a list of amounts: an envelope holds the money itself, or, in the digital form, a claim on the balance.

Through the pay period an envelope answers one question: how much is left for that kind of spending. A $600 grocery envelope loses $85 at each $85 grocery trip, and what it holds is what the period still has for groceries. An empty envelope means that kind of spending waits for the next paycheck. What an envelope holds at the end of the period either goes back into the next split or stays in the envelope; the method itself doesn't decide which.

The digital form keeps the cash in a checking or savings account and the envelopes as records against the balance. The account reports one number; the envelopes divide it. This is the same idea as earmarking, where part of a balance is assigned to a purpose without being moved.

A paycheck of $2,400 arrives every two weeks. It is split into five envelopes: $1,200 for rent, $400 for groceries, $250 for utilities, $150 for gas and $400 for savings. Together the envelopes hold $2,400, the whole paycheck, and $0 is unassigned.

Ten days in, $270 has been spent on groceries, and the grocery envelope holds $130. In the cash form that is the bills left in it; in the digital form it is the $400 record minus the $270 charged against it.

Paycheck

$2,400

Rent

− $1,200

Groceries

− $400

Utilities

− $250

Gas

− $150

Savings

− $400

Unassigned

$0

What the envelope holds is the limit, and it can be read before the spending happens. With $400 in the grocery envelope and $270 spent, $130 is the answer to how much grocery spending the period has left, without a comparison against a total or a running tally of the month.

Because the whole paycheck is assigned on arrival, the trade-offs are explicit. Putting $50 more in the gas envelope takes $50 from another one, since the envelopes together can hold only the paycheck.

Taiga Finance has no envelopes by that name, and a spending line on the Plan does most of what one does. The line names a kind of spending and a planned amount for the month, reads “$spent of $planned” as connected transactions land against it, and, set to “Carries over”, carries its balance into the next month; “Move money” shifts an amount from one line to another. For money set aside, a savings fund on Savings claims part of a real account's balance while the money stays where it is, and the rail shows what is earmarked and what is free to allocate.