There are 4 basic principles of envelope budgeting. In my last post we covered the third principle, which is when you run out, you must make a choice. The fourth principle is “at the end of the period, what’s left is savings.”
“One of the key principles to securing financial fitness is to save something first. In addition to setting aside a specified amount for savings each month, the envelope system allows you to save the balance remaining in many envelopes at the end of each period. For example, if you have some money left in your groceries envelope at the end of the month, you could take that money and apply it to savings, since you would be funding the envelope with enough money next month to take care of your needs for that period.”
“Many of your discretionary spending envelopes would qualify for this review at the end of each period. Discretionary spending envelopes are envelopes covering areas of spending that are not tied to fixed or required expenses. Based on the spending decisions you make in these areas, you may often have money left over at the end of each period. Examples of discretionary spending envelopes include clothing, groceries, eating out, entertainment, and so on. By adding the amount left in each of these envelopes to your defined savings, you can significantly increase the amount you apply to savings, debt repayment, or long-term investments. The envelope system holds the secret to increased savings.”
The Sweep Feature of the Mvelopes application is the perfect tool to help you apply left over money to savings, debt reduction, or any other larger purchase you are trying to save for. Even small amounts of money can up fast when you sweep them into savings each month.
“While people in our grandparents’ day used cash to successfully implement the envelope system, it is more difficult today. Many purchases can still be made conveniently with cash; however, we often pay for goods and services using checks, debit cards, credit cards, online bill pay, and even automatic withdrawals from our bank accounts. For some, the cash-based envelopes may represent the best approach for ensuring financial management success. For others, cash may simply not be a feasible alternative. The envelope principles outlined above are not dependent on the implementation tool used. As a result, you can successfully incorporate the envelope process using one of four basic approaches: (1) cash, (2) a paper ledger or computer spreadsheet, (3) a computer-based envelope system, or (4) a combination of these.”
Contains excerpts from Applied Principle 9, Money for Life, by Steven B Smith