What to do when an envelope runs out
You stop spending in that category until the next paycheck, and you write down what it was short by. The stop is the mechanism and the shortfall is the measurement. Moving money in from another envelope is the move that ends the system, because it deletes the only number the method produces. Once the period closes, work out whether the envelope was wrong or the month was.
What to do for the rest of the period
Stopping is not a punishment. It is the reading. An envelope that empties before the period does is the only place this method reports back to you, and it reports two things you can act on: the day it ran out, and the amount you still needed.
If the spending genuinely cannot stop, and groceries sometimes cannot, then take the money from one other envelope and cut that envelope in the plan, permanently, before you spend it. That is a different act from borrowing. You are not planning to put it back, and you know what it cost.
Why borrowing from another envelope breaks it
A loan needs a repayment, and there is no income between now and the next paycheck to repay it from. So the money never goes back. What you called a loan was a cut to the other envelope, made without deciding to make it.
Then it compounds. Take $33.85 out of the gas envelope every period and that is $880.10 a year out of an envelope holding $3,120.00. Gas runs out too, so gas takes from eating out, and within a few months every envelope funds every other one. That is a checking account with extra steps.
A bad estimate or a bad month
These look identical on the day and have opposite fixes. An envelope that runs out in three periods running was estimated wrong and needs resizing. One that ran out once, in the month with the wedding and the vet, was a bad month and needs nothing.
This is why the shortfall gets written down. One data point is a story; three is a number. Resizing after the first miss is how a plan quietly inflates until it stops constraining anything.
Resizing the envelope
Raise it by what it was actually short, not by a round number that feels safe. If groceries ran $34 over twice, the envelope is about $34 light, and $50 is you buying comfort with money that has to come from somewhere else.
And it does come from somewhere else. Every dollar you add has to leave another envelope or come out of what was left to spend, so decide which before you decide the amount. An envelope raised without naming its source is the same borrowing, done in advance.
Written by Larder, makers of an envelope budgeting app for iPhone. Last reviewed .