Which Budgeting Method To Use
Zero Based Budgeting Or Envelope Budgeting?

by Mike
(Cirencester)

I'm setting up a budget and I'm not sure which budgeting method to use: zero based budgeting or envelope budgeting?

Answer:

Although both methods of budgeting are very effective it is important that you find which one will work for you.

Zero Based Budgeting

This method of budgeting ensures that your money is reaching it’s maximum potential.

Things such as shopping, gifts, entertainment, dining out, emergency fund and savings are all worked into the budget until all of your income is accounted for.

This is a great method to curb impulse shopping, but you need to be disciplined. If you have not budgeted for it you cannot do it. The first step is to create a budget, this is easy using one of our free downloadable budget spreadsheets.

Make sure you are realistic. If you budget too tightly you may become discouraged and give up. Find out more about zero based budgeting here.

Envelope Budgeting

The envelope budgeting method is more hands on. Traditionally at the beginning of each month you allocated cash to each of your costs and keep them in envelopes. As you spend your money you can physically see the amount of money left for the month. This can help you make better decisions.

However in this electronic age, it is difficult to completely operate in this manner. Some costs will need to be electronic, bills, mortgage, car payments etc...but many of your costs can still be paid in cash.

Paying in cash will make you aware of what you spend and may make you become more frugal, saving you money. It also gives you more bargaining power with suppliers as they will avoid costly banking charges.

The down side is that you may have large amounts of cash in your house or on your person, especially close to pay day. Find out more about envelope budgeting here.

Good luck with your budgeting, I hope this has helped you decide which method will suit you best.

The Budgeting Steps Team