Why ‘Envelope-Type Budgets’ Are a Bad Idea

In years of studying and working with the application of real-life financial strategies for success, the envelope concept of budgeting has got to be the single worst commonly accepted strategy for successful money management I’ve ever seen.

Is there anyone who hasn’t heard that crash diets don’t work? The reason crash diets don’t work is that the concept is to deny and sacrifice desires. This idea forces you to start thinking of chocolate cake and other fatty, yummy foods and of course, what you focus on becomes the ultimate motivator. For a short period of time a restricted diet can appear to accomplish the desired goal, but what’s not recognized is the long term negative impact that the diet does to someone emotionally, physically and spiritually. From the moment the crash dieter deviates from their diet, their guilty conscience kicks in with a barrage of negative self-talk about how they have failed and they can’t follow through and they’ll ‘never’ be able to lose weight, etc. etc.

The concept of an envelope budget starts by taking your income and allocating it according to personal expense items. The amount for each pre-determined category, such as food, entertainment, automobile, etc. is then subtracted from the income and placed in an envelope or other container. Whenever you have a need to purchase something from that category, you simply go to the container to take the required cash. Essentially you restrict the cash available for each of your pre-determined spending categories until you’re able to ‘top them up’ again.

This system creates an environment where every purchase and transaction is scrutinized from a position of scarcity, not abundance. Obviously it’s important to pre-plan your spending so it’s aligned with your values and desires and current requirements. That is essential, but not the point here.  A healthy lifestyle requires a lot more than a restricted diet so you can fit in to a certain size clothing and a sustainable financial future requires more than restricting your spending.

A scarcity focused budget forces you to emphasize what you can see in your bank account and to make sure you stay within that ‘box’ in order to manage your money on a day-to-day basis. From God’s perspective, it would be the equivalent of taking a few small loaves and couple fishes and cutting them into very small pieces in order to try to feed 5000 hungry people. (see Matthew 14:13-21)

This envelope budget concept is even worse than the crash diet because during the period of time that you are trying to follow the envelope strategy every time you reach into an envelope for money, you end up calculating how much is left to be sure you don’t run out. The concept is reinforcing that money is a scarce resource and that if you’re not careful and watch your pennies you’re going to run out. It also sets the stage for people to secretly ‘rob Peter to pay Paul’ by taking from one envelope to meet the needs (or wants) in another category. This of course, opens the door for secrets and guilt and another layer of condemnation – none of which are supportive of cultivating an intimate relationship with the Lord and trusting in His infinite resources.

When you constantly reinforce scarcity and fear and restriction on a day-to-day basis, you also sabotage confidence in the Lord’s provision. When you expand this mindset to larger financial decisions like investment planning, it’s easy to see why people are hesitant to make decisions for fear of losing money. They are being taught and reinforced on a regular basis that they had ‘better be careful, it’s all they money they have, and they can’t afford to lose it.’

The lack of financial confidence for the average family is of epidemic proportion today. And, for some reason we seem to accept that these ‘in the box’ restricted, scarcity, fear based strategies are somehow going to help create a confident, competent consumer. Really?? Mismanaged, careless spending won’t do that either. As we have seen, it has created a society in bondage to their lifestyle which has unfortunately been acquired using credit, not earned using the economic freedoms they have access to.

The key is a shift in perspective. The dictionary defines a budget as ‘planned expenditures and a program for financing them.’ This means that you start with how much you plan to spend, not how much you currently earn. You prayerfully listen to the Holy Spirit prompting you about His desires, interests, passions, and purposes for your life. Then you establish a system that helps you cultivate His blessings into your day-to-day financial transactions. When you do this, you start asking questions about how to earn the money to pay for the necessary spending in order to fulfil the plans He has for you (see Jeremiah 29:11).

This approach will turn a budget into something where God’s unlimited creativity can provide you with ideas and help you see opportunities to fulfill His purposes in a way that glorifies Him.  The scarcity view sees money running out, the abundant view sees the coffers overflowing (see 1 Kings 17 for the account of Elijah and the widow of Zaraphath).

The true function of a budget is about managing cash flow. This means that your role is to manage the money He brings in and out of your life on an ongoing basis more like the flow of water in a river. This way you are working with the Holy Spirit, not against Him. Sure, your spending is allocated into different categories, but it’s not restricted when you view finances from the Lord’s perspective and you chose to believe in Him, rather than the money you can currently see coming in through your paycheque, or available in the bank, or in an envelop you’ve set up to hold your current resources.

Our financial life is about earning and spending. The approach to money that says, “all you need to do to be successful is to spend less than you earn” is the equivalent of thinking you are able to control all the variables that affect your finances on your own. Instead, in God’s economy the mindset is one of ‘earn more than you spend.’ This way He becomes the provider and your emphasis is less on money, and more on Him.

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