How to budget with the envelope system

This post is by Eva Baker of Teens Got Cents.

Eva Baker with her dollar-store sunglasses.

Have you bought a new pair of sunglasses lately? Sunglasses from one of those fancy sunglass shops start around $50 and go on up — way up. I’ve never been one to spend $150 on a pair of sunglasses. Truth is, I lose them. Drop them. Sit on them. Then lose them again. And it isn’t like I ever have $150 to drop on sunglasses, anyway. But even just $20 a pair at Target, my sunglass habit was really starting to add up for me and my clumsy self.

So what’s a teenager to do?

I found the answer during a recent trip to the dollar store. Did you know that some dollar stores sell sunglasses? Cute ones? For a dollar?!? I can lose as many pairs as I want — ’cause they cost a dollar!  I really don’t care about having high-quality sunglasses because I’m so hard on them. At the dollar store, I can buy several pairs. If I break them, it isn’t the end of the world.

Teens have money problems just like everyone else — maybe even more so because our employment opportunities are limited while we pursue an education. However, there are things we can do to make the most of the money we have.

The envelope system

The solution for me has been the envelope system. It’s a super simple way to keep track of your money and decide where you want to spend and where you want to save.

You start out by deciding what categories you need. Are you responsible for buying your own clothes? Then you will need a “Clothing” envelope. Hoping to buy a car? Yep, you are gonna need a “Car” envelope. Want to make a difference in the world by contributing to charitable causes or to your church? Then you will need a “Giving” envelope. The envelope system is also a great way to save up for specific purchases that cost a bit more. Want the new iPad Air? Create an “iPad” envelope.

Any time you get any money — whether it’s from a part-time job, your allowance, or it’s a gift — sit down with your envelopes. Take the cash that you have and decide where you want to put your income. Having a spending envelope to support your Starbucks habit or to buy an expensive pair of sunglasses is fine. Just make a purposeful decision on how much money you want to put toward that category.

I have a number of envelopes right now.  Three are for long term savings goals — Car, College, Retirement. The others are more short-term, and include Spending, Giving and Clothing money. I also recently started a new envelope for Christmas so that I will remember to set aside some money to buy gifts for my family.

When I want to go to the movies with friends or out to eat, I check my Spending envelope. If I don’t have any money in that envelope, I don’t go anywhere. It might be tempting to grab some cash from another envelope, but it’s just not worth it to me. If I don’t have any spending money then I have to be creative and do something fun with friends at home. When I go to college, I am committed to avoiding student-loan debt. Having expensive sunglasses today just does not begin to compare to being saddled with debt as a young adult.

It’s your system — you make the decisions

There isn’t a right or wrong way to do the envelope system (though if you put everything in your spending envelope every week, I will judge you!). Whenever we can be purposeful and make decisions about our money instead of allowing life to just happen to us, it’s a good thing. If you learn to do this in your teens, you can avoid so many of the financial troubles that adults face today.

Eva Baker is the publisher of TeensGotCents, where she writes about how to get a great part-time job, shop smart, get the very best deals, graduate from college debt-free and even how teens can start their own businesses. You can also find her on Facebook, Pinterest and Twitter.