Cornerstone Headlines

Wednesday, July 1, 2015

Envelope Budget System That Works

If you are new to planning a budget or if you are not technologically advanced, this simple budgeting process of using envelopes may be right for you. I remember back many years ago when I was just around twenty years of age this technique was introduced to me. This particular budgeting system is very effective and has a proven track record for working for most people as long as they stick to the program. Many people today rely on technology to do their budget and finances but if you look back you will probably see that a large portion of population is in debt because of technology. It is so easy for people to pull out that plastic card to pay for things even when they don’t have the money to pay for them. We all have been guilty of this in one way or another and that is why we are in debt, and many us are deep in debt way over our heads.

Let’s take a look at these simple steps to setting up an envelope budget.
  • The first thing you will want to do is go to a Dollar store and purchase a box of envelopes. I like e to use the yellow envelopes that has a clasp on the top.
  • Next write on each envelope preferably with a Sharpie the items you need to budget for. The envelopes need to be categorized and labeled. For example, label one for groceries, one for gasoline, one for credit cards, and so on. I would also make a miscellaneous envelope and a backup envelope. These will be used only for a couple of months to make sure that you do not run out of cash in a particular envelope. This will be your cushion while you are adjusting your budget per category.
  • Now that you have your envelopes set up you will need to sit down and figure out the monthly dollar amount for each envelope. You should have a good idea of how much you spend on each of the categories. If for some reason you have no clue what you spend on these then you will need to keep track over a month or two on paper to see what you are spending so you have an idea of what to put on the envelopes.
  • Now pay your recurring fixed bills like your mortgage, utilities, car payment, etc. The money left over is what you are going to use to set up the envelope budget.
  •  Take cash out of your account at the bank and put in the allocated funds into each envelope. When you make a purchase you will pay for the item with the cash in the envelope. Get a receipt for the item even if it is for gas, take the cash from the envelope and replace it with the receipt. When all the cash is gone in the envelope you are finished for the month in spending in that category. The idea of the receipt is for review, if you are upset because you have no more cash in that category and you want to know where it went you can go back and look at the receipts and see what you spent the money on.

You will find it takes a couple three months of tweaking this system to make it work smoothly. This is why you have a miscellaneous and a backup envelope with spare cash in them to fall back on so one of your envelopes runs dry and a emergency happens in one of these categories.

At the end of the month and you have left over money in any of the envelopes you will want to take this money and put it into a savings account. If you are like most and you don’t have a savings, now is the time to start one. Once you have three to six months of income saved up in your savings you will want to take the money that is left over each month to start paying down your debts until you are fully financially free of debt.

No comments:

Post a Comment