The Back Pocket
The Envelope System of Budgeting
Often, when you cash a check through a bank, your money is given to you in a cash envelope. People used to spend the money in this envelope wisely, knowing that there was no more money until the next payday. They physically could look and see how much they had left everytime they shopped or thought about shopping. So rarely do we sit and look at our checking register before we whip out a plastic card or a pen. The envelope system of budgeting works for many people. It uses the tried and true method of physically seeing your dollars to determine your spending.
First, you sit down and budget out your spending. You can use one of two methods: In method one, you label an envelope for each expense. Be sure to break down your yearly bills, such as property taxes or insurance premiums, into monthly allotments. Each envelope will have an amount on it that you will place in it each month. You can substitute envelopes for several coupon organizers.
Designate one for bills, one for debts and one for monthly spending. This method works well for those with few bills. Method two takes into account that many payments come directly from your checking. On paper, you will account for each bill that you pay during the month. This is your bill paying guideline. Simply keep a notebook with a page for each month with each bill listed. Mark them off as you pay them. You can total each month's bills in advance to help determine how much you have to go in the envelopes. It is often wise to go ahead and have your savings automatically deducted from your account each month. Never seeing the money in an envelope reduces the desire to pinch some of it.
Take the left over money each month and allot it to the envelopes for your monthly spending. The envelope categories may include groceries, clothing, eating out, gasoline, car maintenance and so on. If you allot $100 a month to clothing, put $100 in cash in the clothing envelope. You can only spend what is in your envelope for clothing on clothing. If you don't spend anything on clothing one month, then you will have $200 in the envelope the next month. Once you've spent all of the money in the envelope, you are done with that category for the month. The cash you have is all you can spend. Don't write a check, don't use a debit card and never use your credit card to buy extras. It could take a few weeks to get the process down, but stick with it. You will get the hang of it.
Most people find that the envelope method allows them the spending freedom they desire from a budget. They know how much they can go spend, without worrying about what has already been spent for the month. If you are paid bi-weekly, simply adjust the method to work around your pay periods. I like to treat myself for sticking with the method by taking all of the cash out of the grocery, eating out and entertainment envelopes and putting it in a special savings envelope before refilling it each month. This is my blow money. I use it to save for things I see that I want. This envelope has no rules or restrictions, but can be used for anything. I've found that over time, it is easier to save for large items -- I don't just blow it on a bunch of little things.
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