Are you tired of the guessing game when it comes to your finances? Wondering where all your money vanishes by the end of the month? Hoping you could save more and pay off debt? Well, it’s time to wave goodbye to budgeting confusion and say hello to the envelope savings technique.
What is the envelope savings method?
Picture this: you’ve just received your paycheck (whether it’s biweekly or monthly) and now you have envelopes in front of you.
With the envelope saving technique, you label as many envelopes as you need with specific purposes, stuffed with the exact cash you’ve allotted for that purpose.
Most times, envelopes cover one of three categories: savings, wants, and needs—then they can be made into subcategories with envelopes under each category focused on things like “gas,” “going out,” “bills,” etc.
Then, for the rest of the month, you can only use the allocated money within each envelope. It’s budgeting made tactile, and it adds an element of accountability and visibility to your finances.
Why the envelope savings method works
The envelope savings method offers several benefits for managing your finances more effectively. Firstly, this technique can protect you from having to deal with overdraft fees and the potential debt that often comes with frequently using your debit and credit cards. By assigning cash to specific envelopes, you establish clear spending limits, that will stop you from overspending on impulse purchases.
Similarly, with the cash-only method, you’re more likely to develop a deeper emotional connection with your money. The envelope method works its psychological magic by allowing you to see your money physically depleting. When you pay with cash from a designated envelope, you visually experience the money leaving your hands.
This tangible interaction creates a stronger connection between spending and its impact on your finances. It’s like a reality check that helps curb impulsive spending and encourages mindful choices.
Getting practical: envelope savings, both analog and digital
Analog envelope savings
If you’re planning to use the cash-only method (where you physically have the cash on hand), here are some steps you can follow:
Get envelopes galore: Label envelopes for each spending category – like “Rent,” “Groceries,” and “Fun Money.” You can even get more specific with your envelopes by labelling the “Fun Money” with things like “coffee,” “shopping,” “dinners out,” or even “saving for the next trip.”
Spread the wealth: Hit the ATM or your bank and withdraw your calculated amounts, and stuff them into the corresponding envelopes.
Category control: When you need to spend, grab the right envelope. When the envelope is empty, you’re done spending in that category for the month. If you have money left over in an envelope after the end of the month, carry it over to the next month or allocate it to another category.
Digital envelope savings
If you’re hesitant to use all your cash in this way, you can always find a happy medium with a digital version:
Make a spreadsheet: Create a spreadsheet with your spending categories and allocate your money accordingly.
Expense entries: As you spend, input your expenses into the spreadsheet or app. Watch the digital envelopes deplete as your spending progresses.
Best of both worlds: combining analog and digital
If you’re a tech-savvy traditionalist (or a tactile digital explorer), combine the two methods. Use envelopes for categories that require strict control, like groceries or dining out. For others, rely on apps or spreadsheets for flexibility and detailed tracking.
Take control of your savings
Whether you’re all in with cash-stuffed envelopes or prefer the digital precision of spreadsheets, the envelope savings technique empowers you to take control of your finances.
With envelopes, you feel the financial pulse of your spending; with spreadsheets and apps, you gain insightful data to fine-tune your budget.
So, embark on your budgeting and saving journey armed with envelopes or screens – or both! The goal remains the same: financial clarity, smarter choices, and a confident grip on your hard-earned money. It’s your financial adventure – let the envelopes or apps be your trusty sidekicks!
But, if you need additional help on your financial journey—especially if you have debt—connect with Farber today and we’d be happy to help.