The History of Envelope Budgeting

envelopebudgeting.jpgBudgeting principles are as powerful today as when they were first adopted to change someone’s behavior or create a plan to manage resources throughout human history.

The simple act of labeling something and determining its uses affects human behavior. The labels we place on our money and the things we purchase benefit us. Labeling our money’s uses, and the goods we purchase as an appropriate use for that money, leads to changed behavior. In the case of a budget, it leads to living within your means and saving money.

Categorizing purchases determines how our money should be used. It gives us the guidelines of what our behavior should look like. By tracking purchases and following through on categorizing we can identify what we have done well and what we have done poorly. We can see what behaviors are causing us to keep to our budget or to overspend thanks to tracking and reviewing on a regular basis.

The ideal outcome in any budget is to have some left over to save. The principles of saving date back to the appearance of agriculture and played a key role in the book of Genesis as Joseph told Pharaoh he should prepare for seven lean years during the seven years of plenty.

While forms of budgeting have undergone many twists and turns throughout history, the benefits have remained the same.

The Modern Envelope

A mental budget can work, but an efficient budget involves something that helps to remind you to keep to your plan. A modern example is the envelope system. Tin cans and probably any other small container have been used through the years to keep and categorize a budget for everyday use.

Both the envelope and the financial budget we think of today underwent a transformation in the 1800s. The envelope came of age in Britain in 1840 and by the 1860s in America the first envelope manufacturing machines popped up. Wide-scale manufacturing improved by the turn of the century.

A budget today is an organizational plan in terms of money or how we organize our finances. Originally, budget meant pouch, wallet or bag made of leather and came to the English language from Latin by way of France. By the 16th century, budget also referred to the contents of the pouch, which is where paper enters the equation. In 1733, it became linked with finance and by the 1880s, budget, the verb, appeared in the lexicon as planning one’s expenditure. Around 1900, ready-made budget ledger pages for households were available to help create a personalized budget. A household budget was still something only the rich used. The early mentions of household budgets came from reports of royal households in Europe and how much they spent. Slowly, women who ran their households saw the benefit of a budget.

The Envelope System of High Finance

Mentions of household budgets in news reports started to pick up at the turn of the 20th century.Whoever first stuck their money into an envelope to help budget is unknown, but it was still a fresh idea a century ago in New York City.
The Evening World of New York ran a thrift campaign over the first half of 1916 asking people for their common sense savings plan. A respondent began her plan with this:

Evening_World_Header.jpgTo the Thrift Editor of The Evening World: “Like most of your correspondents I, too, divide my money systematically – putting aside in envelopes money for my various expenses. Without some such system saving is practically impossible – what you save in one instance flows out unnecessarily in some other way.”

Two years later, the New York Tribune ran a story to help readers Find Out What’s In Your Envelope. It’s a conversation between two people, Marie and Lillian, with Marie explaining her envelope budget.

Tribune_Header.jpg“Well, began Marie, “the important thing about it is that it is a plan. Spending my week’s salary isn’t a helter-skelter, chance affair with me anymore. I know when I get my pay envelope just exactly what’s in it. There’s first of all, so much for board and room, and a definite sum for lunches and carfare; then there’s so much each week for clothes, so much for savings and my weekly contribution to church and charity; and, last of all, there’s my ‘general’ fund. This includes movies, gifts to my friends, magazines, shines, etc. – all the little odds and ends that take the pennies of a business girl like me. With this ‘general’ fund, too, I manage to do as many as I can of the things I really want to do. Some weeks it’s almost a ‘pleasure’ fund, though at times, of course, incidentals take the biggest portion of it.”

“But does it mean keeping accounts and getting balances and writing down every last cent you spend?” asked Lillian.

“It does not! If it did, it would never do for me. I couldn’t be bothered,” said Marie. “I use six budget envelopes. Every week when I get my pay envelope I have my money changed into small bills, and before I spend a cent I slip into each of these envelopes the amount of money that belongs to each. It took me a few weeks to find out just what amount to set aside for my various needs, but I worked it all out in surprisingly short time and now I stick to my budget as you’d follow a blazed trail after you’d been lost a couple years in the woods!”

“And six months later it was the thriftless Lillian who was passing on to a friend that little budget plan. “The envelope method is the only way to do it,” she said. “And it’s so much easier, when you know what’s in your pay envelope, to get what you want out of it.”

The Postmodern Envelope

The envelope system worked 100 years ago and has functioned in some form for a long time. The principles of envelope budgeting encompass a system that works whether the money is placed in a tin can, envelope or tracked on your phone.

Set Money Aside in Advance – Label and categorize your money for its different uses, making sure to set aside money for your debts, bills and periodic expenses.

Spend From How Much You Have Left – Budget the rest of the money for your everyday spending and needs to get you through the week or month.

When You Run Out, You Must Make a Choice – When those categories are running low and you’re wanting to make a purchase, but don’t have the money you’re faced with a decision. You can not purchase it, purchase something cheaper that does fit your budget, or move money from another category to cover for the purchase.

Savings are Left Over – You should be left with something extra at the end of the month, if you’re managing your money effectively. It may be a little or it may be a lot, but put it into savings so you’re preparing for your financial goals or establishing cover for when the math isn’t working in your favor.

Mvelopes helps you put each of these principles into use in your daily life, so you can take advantage of budgeting principles which have stood the test of time. Through creating a budget and tracking daily expenses you are able to make adjustments to your spending and behaviors so you can live within your means and start accomplishing your financial goals. Start your budget today with Mvelopes by signing up for a free trial.


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