Introduction
Making budget decisions can be tough task especially when you have no interest in your spending track. Envelope is a systemic way by which you can track your money in easy, simple and effective ways. This method is introduced by one of the famous financial experts Dave Ramsey. By this method you will be able to put money aside for specific types of costs. This method will help you to keep on track and maintain your budget and avoid overspending. Here are some useful tips and ways to use envelope methods to create your budget.
1. How envelope system works on a basic level
When you are going to create your budget with the help of envelope system, you will have to put your cash based on your income into different categories and each of these categories represents different types of cost. You cannot spend money again if you are in envelope system until you make a new budget. This restriction will help you to keep you away from overspending and helps you to make a clear plan for your spending.
2. Make a budget
Before using the envelope methods you need to make a detailed budget plan. Create a list of your ways by which you can make money and then add them in your monthly pay. Then you have to make a list of your cost types. Here are some common groups that will help you in making plan.
- Can I rent or buy
- Utilities
- Groceries
- Transportation
- Entertainment
- Dining out
- Savings
These groups will depends on the money you make and how much you spend. You have to set a reasonable amount for each area. You have to pay attention to both standard and flexible costs. You have to set costs in which you have to include things like rent and bills and in flexible costs you have to add food and fun expenses.
3. Get your envelopes ready
Once you come to know about the amount and groups of your budget then you have to each one its own envelope. You have to write the name of groups and the desired amount on each envelope that you planned. You can use real envelopes and also use applications if you don’t wanna use it physically. There are many applications that will provide tasks like envelopes.
4. Plan for spending money
When you get your money it can be from your income or some other source take it out on cash and then divide it in each envelope which will based on your budget, like if you have set 200$ for rent then put that money in your rental bag.
5. Keep track of what you spend
Always take amount from the envelopes as much you need and as you can spend it. Use the money form your utility envelope to pay your bills. This method will help you a lot to stick on track, maintain your budget and keep your eye on your spending. You can use notebook, note pad or digital application to track your spending and the remaining amount in each envelope. These methods will help you to track your spending and you can make any changes if needed.
6. Make changes to your budget
Budget you make can be not good for some time due to different circumstances. So it is very important to look at it regularly and make changes if it needed. In the end of every single month you have to check on your spending and make sure that you are stuck to your budget. If you find some area where you ate spending more than its budget so you have to immediately change your budget. In this way every area will have accurate distribution and you will not spend more in any area and can be on track. If in the end of month you have extra money in any box then don’t spend it you have to move it in savings.
7. The Envelope System’s Pros and Cons
There are many good things about the envelope system and they will force you to adopt it.
Better Awareness
By using real money for your spending will helps you to know the actual amount of money you are spending. Which will help you in making smart financial decisions.
Limited Overspending
This method will help you to set an strict limit on your spending, so you will spend in limit and not go over your budget.
Prioritization
When you have limited money in your pocket then you will only spend that money very carefully and on the things which your really need.
Digital Options Instead of the Envelope System
If you don’t want to handle cash or not like physical envelope system so you can look into digital options. Their are many applications that work same like envelope system. By using these applications you can put your money in digital boxes and keep records of your spending. Their are some useful and famous apps.
Good budget
This is very simple and basic application which is use for tracking your money and spending. This app will work on the rules of envelope methods.
Envelopes
This application is an digital version of envelope system which helps you to track your transactions and budgeting tools.
YNAB
YNAB stand for you need a budget. This application is not working on the rules of envelope system but you can also use this application for tracking your spending.
Conclusion
If you want to be financially stable then you can use envelope systems. It is one of the best method to control your money and helps you to keep on budget. You will get much help by putting cash for specific things in different areas and also by paying bills in cash. It can be tough task for you to manage it and also requires discipline, but becoming more financially aware and spending less as you need and managing your debt better will make you proud and it will be worthy. The most important thing is you have to stick to it. It doesn’t matter that you are using paper box or digital option the thing matters is your consistency. You can get your finances in order and work towards your financial goals by applying envelope method in your life.
FAQs
What is the envelope method for making a budget?
Envelope method is a kind of budget which is cash based. You have to put money in different envelopes and use that money for your need. Each envelope contains different types like utilities, groceries and entertainment. This is one of the best way to track your spending and lower your expenses.
How to start using the envelope method?
If you want to start enveloping then you have to set a budget give name to each envelope for each type of buying. Put money in these envelopes as you receive it. Use the money of envelope for the task of which it meant for.
What are the benefits of envelope system?
The envelope system will make you more aware of your spending, helps you to avoid wasting money. It will help you to stick to your budget and make it easy to lower your debts.
Can I use digital options instead of real envelopes?
Yes, you fan use digital applications which are just similar to envelope method such as good budget, envelopes and YNAB these all applications work like envelope system. They provide you same functionality but in easy way.
