Managing your spending can be complicated. With the use of debit cards, checks, credit cards, online bill pay, etc. it’s no wonder that people aren’t sure where their money is going, or how much they are spending. It can be very overwhelming to keep track of everything, unless you have a simple, effective tool that will help you do it. The Principles of Envelope Budgeting are just that… simple and effective.
“Isn’t it amazing how often we learn about simple principles that, when applied, have the ability to impact our lives in profound ways? Such is the case with the traditional envelope method of personal financial management. Many have heard of or are familiar with someone who has used this simple system for spending management. The envelope system has worked exceptionally well for many people in the past. These people understood the basics of the system and how to use it, but many could not articulate the principles behind the system that allowed them to be successful.”
Envelope Budgeting is a tried and true way to manage your spending, and to ensure that you are living within your means. While the idea of using cash for all your expenses may not be feasible, the envelope principles can still be easily implemented in today’s electronic world. Let’s first look at how the traditional system worked…
“The envelope system as it was used with cash is very simple. In the days before the proliferation of credit cards, debit cards, and other forms of cashless spending, many couples were very dedicated to this system and used it effectively for years. Initially, a couple would sit down together and determine how much cash they would receive each month. This available cash represented the net amount of all of their paychecks for the month. Then, they determined where they would be spending money. Their areas of spending included things that they would purchase and pay for each and every month, and things that they would spend money on only periodically. After completing their list, they took out a stack of envelopes and labeled one for each area of spending. Their next task was to determine the amount of money required for each envelope every month. For the areas of periodic spending, they calculated the amount they would spend each year, and then they divided this amount by 12. This represented their monthly spending plan.”
“When they received a paycheck, they would go to the bank and cash the check. Then they would sit together at the kitchen table and divide the cash into different envelopes based on their defined spending plan. When they paid for goods or services, they would simply spend from the specified envelope. The envelope became a self-policing spending account. Couples always knew how much money they had left to spend and how long it needed to last.”
Follow along with us through the next few blog posts as we review the four principles of envelopes budgeting. They are the key to creating financial success. These principles “reveal the secrets of how you can achieve financial fitness utilizing the envelope system.”
Contains excerpts from Applied Principle 9, Money for Life, by Steven B Smith