# Setting Up Envelope Budgeting

FreeBudget is designed to be simple and flexible. It is not built around a single budgeting philosophy, which makes it a good fit for envelope-style budgeting, even if you are coming from a paper ledger or spreadsheet system.

If you already use envelopes and have defined categories with existing balances, here is the recommended way to get started.

***

### How Envelope Budgeting Works in FreeBudget

In an envelope system, each category represents a pool of money that you spend down over time. In FreeBudget:

* [**Categories**](/help-center/transactions-and-categories/categories-overview.md) act as your envelopes
* **Budgets Amounts** define how much you plan to allocate per month
* [**Transactions**](/help-center/transactions-and-categories/transactions-overview.md) reduce or increase the available amount in each category
* [**Dashboard**](/help-center/dashboard-and-reports/dashboard-overview.md#budget-progress) **&** [**Reports**](/help-center/dashboard-and-reports/income-and-expenses-report-explained.md#show-budget-toggle) show actual spending vs budgeted amounts

FreeBudget focuses on moving forward cleanly rather than recreating years of history.

***

### Step 1: Set Your Monthly Budget Amounts

Start by setting up your envelope amounts in the `Budget` tab.

For each category:

1. Enter the monthly amount you normally allocate to that envelope
2. Save your changes

Once your budget is set, FreeBudget will use it across charts and reports to show how you are tracking over time.

{% hint style="info" %}
Use the Copy to future months, Copy from last month, or Copy from last year icons to speed up your budget entry.

<img src="/files/Yh47zxt3iIApyNyAKEpj" alt="" data-size="original">
{% endhint %}

***

### Step 2: Add Starting Balances for Existing Envelopes

If your envelopes already have money in them, you have two simple options.

#### Option A: Start Fresh This Month

This is the most common approach.

1. Pick a start date, usually the first day of the current month
2. Add a transaction called something like **Starting Balance**
3. Assign that transaction to the appropriate category
4. Enter the current envelope balance as the amount

This creates a clean baseline and avoids unnecessary backfilling.

#### Option B: Add Previous History

If you prefer a little more context in reports, you can go back a few month or to the beginning of the year and add the starting balances there instead. This can make early charts feel more complete, but it is optional.

However, you do not need to recreate historical spending to use FreeBudget effectively.

***

### Step 3: Track Spending Going Forward

From this point on, just record income and expenses as they happen. Your category balances will naturally reflect envelope activity.

***

### Envelope Performance

FreeBudget includes several reports that work especially well for envelope budgeting.

#### Budget vs Actual Chart

Once your budgets are set, you can view your budget vs actual dashboard chart in the `Dashboard` tab to compare:

* Monthly spending vs budget
* Year-to-date spending vs budget

This are helpful for spotting overspending or unused envelope funds.

#### Income & Expenses Report

In the `Reports` tab, open the Income & Expenses report and enable **Show Budget**. This lets you see how each category is stacking up against its budget for the selected period.

***

### Related Articles

* [Budget Overview](/help-center/budget/overview.md)
* [Dashboard Overview](/help-center/dashboard-and-reports/dashboard-overview.md)
* [Categories Overview](/help-center/transactions-and-categories/categories-overview.md)
* [Income & Expenses Report Explained](/help-center/dashboard-and-reports/income-and-expenses-report-explained.md)


---

# Agent Instructions: Querying This Documentation

If you need additional information that is not directly available in this page, you can query the documentation dynamically by asking a question.

Perform an HTTP GET request on the current page URL with the `ask` query parameter:

```
GET https://freebudget.gitbook.io/help-center/budget/budget-setup/setting-up-envelope-budgeting.md?ask=<question>
```

The question should be specific, self-contained, and written in natural language.
The response will contain a direct answer to the question and relevant excerpts and sources from the documentation.

Use this mechanism when the answer is not explicitly present in the current page, you need clarification or additional context, or you want to retrieve related documentation sections.