Envelope method in budgeting

How to use the envelope method to increase your savings?

Is it a big task to save money from your hard-earned money? Maybe it’s time for the envelope method to help.

What is the envelope method?

This is a financial management strategy that encourages you to plan your budget accurately each month. Of course, it will not only help you to plan it, but also help you to use your money more consciously and manage your finances better.

In fact, the envelope method is most useful for those who typically use cash, but with a little practice you can extend this to the digital world as well.

Why is the envelope method good?

By default, you actually keep your money in envelopes, you always decide on each envelope (i.e., the financial categories) at the beginning of the month, and you put money in a given place accordingly. Once you have decided which direction you are going to spend and how much money, you can only use the amount that is in that envelope for that purpose. If you run out of money, you can’t use till you top-up it in the next month.
If you are already very experienced, you can use this method digitally, that is, like a good accountant, tracking your expenses and income. Until you have this practice, however, forget your credit card. This makes you much more exposed to the chances of impulse purchases, which can very easily ruin your budget, which is still in its initial stage.

How do you get started with the envelope method?

The method is very good for helping you keep your finances under control, but what’s true is that it requires some self-discipline in the beginning till you learn to use it. (Just like any other habit.)

1. Select categories and an appropriate budget

Instead of using the “as good as it gets” method, so you would spend everything from what you think is necessary from a “mixed” category, and keep track of your money. Know how much is going by to what. Create categories. I mean things like :

• food
• utilities
• apartment (rent, loan, other)
• car / transport
• entertainment / vacation
• etc.

Make sure you get money for long-term savings too, after all, you’ll always need a reserve!

2. Label the envelopes

After reviewing your finances, you can see what you are spending, write the name of the category and the amount for it on the envelope. This will help you keep track and stay organized.

3. Put the amount in the envelope

Once you have received your payment, distribute the whole among the envelopes according to the amounts already decided. (If you receive your payment by bank transfer, an excel spreadsheet will do a good service later)

4. Spend wisely

When you spend money, take the money from the right place for that category. Think about your expenses, because if you run out of money in one envelope, you can’t make up for it from another. You have to wait with it for next month’s revenue, otherwise you would upset your budget.
If you have money left in one of the envelopes at the end of the month, you can decide in several ways. Eg: so that

• carry it over to the next month, making it easier to plan for the next month
• you increase your emergency reserve with it
• invest to make your money work for you