Once you've made your budget, the next challenge that awaits you is to put it into practice. It can be difficult to keep a record of the money you have left over for your purchases. One method that many use to stay within their budget is the envelope system.
Steps
Step 1. Create your budget
It is enough to divide the financial resources into categories of expenditure. Here are some suggestions:
- Rent or mortgage payment
- Cost of kindergarten
- Costs related to the car
- Food shopping
- Gym monthly renewal (or other types of organizations)
- Utilities
- Taxes
- Savings
Step 2. Assign each of these envelope categories
You can use any size you like. Try to keep money that needs to be spent on the go in envelopes that fit easily into your wallet. Write on it with a marker, for immediate reading.
Step 3. Divide your money into the various envelopes
What needs to be spent on a day-to-day basis (and not all at once) should be put in cash. You can leave envelopes for rent, mortgage or other expenses that can be done all at once blank, or you can write a check and leave it in it, or get rid of it right away. In the other envelopes, however, the money must be inserted in cash. For example, if your budget is $ 500 for food-related expenses until your next salary, put $ 500 in that bag.
Optional: Write in pencil on the back of the envelope how much money is in it
Step 4. Take the money from the envelopes as you need to spend it for that category
Recalculate what you have left and write it on the back, so a glance will be enough to remind you. If you run out of money in a category but still need it, you have two options:
- Don't spend any more money on that category. Do you really need it? Can't you wait to refill the envelope with your next salary?
- Take the money from another envelope. Of course, this will reduce the amount of money for that category.
Example
Receive your salary twice a month. The first paycheck is € 1300. These are the expenses you have to face before your next salary:
- Rent - 600 €
- Utilities, water consumption, sewage purification - 150 €
- Electricity - 80 €
- Payment of student fees - 100 €
- Total - € 930
Considering that you know for certain that your next salary covers your expenses and other expenses before the next one, you should split the remaining money as follows:
- Savings - € 70, to be transferred to the savings account
- Shopping (food, detergents, etc.) - 100 €, in cash in the envelope
- Gas - 60 €, in contacts in the envelope
- Entertainment - 70 €, cash in the envelope
- Expenses for eating out - 70 €, in cash in the envelope
Advice
- There are those who prefer to keep the receipts and receipts of each sum spent, and put them in the envelopes. This can help track the amount of money spent (and understand how to reduce waste). It can be especially useful when paying taxes.
- Try to use very large cuts. You will have the same amount of money, but you will be less tempted to spend it (especially for small expenses) if you have to change a very large denomination.
- If you've earmarked an envelope to pay for a car and have finished paying for it, keep putting at least half of the amount in an envelope for a new car or one for savings in general. Since you are already used to saving this money, it won't weigh you down much, and when it comes time to buy a new car, it will be much easier to start paying. Considering the time that elapses between the purchase of two machines, this money should be placed in a bank account or in a not too risky mutual fund.
- If you are short of cash for a certain category, and you think you might need more, take some money out of another envelope before leaving the house. This will save you the temptation to use your credit or debit card.
- You may find it useful to have a “bank” or “debit card” envelope, so that you can, for example, buy concert tickets online with your card and switch money from your chosen category to your online account. This money must remain in the envelope until the end of the month or period you have chosen for your budget and can subsequently be deposited into your account. It's an effective way to avoid waste, and depositing money back into your account will make you feel great!
- The envelope system is particularly effective for keeping track of money spent. Paying in cash, especially when there is a clear visual indication of how much cash you have, can generally help you spend less.
- You should never, ever withdraw more money from your checking account or use a debit or credit card if you don't want to exceed your budget. There is no budget system that works if you can't follow the parameters you set yourself. It may happen that you spend more than you budgeted for, but the feeling of discomfort it brings can motivate you, the next time, to take better account of your money.
- Pay yourself first. The purpose of a budget system is to make sure that you are not spending more money than you have, and it is also a great way to save. The best way is to allocate that money before creating the rest of the budget. That is, deposit your salary and withdraw only what you need for the expenses of the month. Leave the rest in the bank.
- Consider using recycled envelopes. You probably get dozens of them a month in the mail. If you open them with a utility knife, you will have a nice set of new envelopes delivered to your home every month.
