One cannot be more clear on its theme, "How can I spend if I don't have the money?" No hidden costs, no credit card fees, just simple payment with cold hard cash (although cheque payments can also be made).
Here Comes The Cash The practical concept is really quite straight forward.
From the time you get paid, put into each envelope the nominated cash amount that you wrote down on the back of the envelope.
The envelope represents the category you chose to spend money on.
Now as time goes on, record how much you spent from the category, by taking out the cash and replacing it with store receipts.
Another method is to record the spending in a log, and insert that log into the category envelope.
It won't take long for you to see where your money is going and how much you have spent.
But be careful for your category not to run out of money too soon! If that happens, well there are two choices you may wish to consider: Take the bullet and don't spend any more for that category, OR take it out of another envelop (category).
The choice is yours.
Either way, you will not end up in negative amount.
It is very important to consider the consequences of taking out from another category before topping up the other.
Spending behaviour and money management should tell you what sort of spender or saver you are.
Hopefully this envelop method will provide self-discipline.
Balance and Adjustments No doubt that over time you will be making adjustments to many categories and feeling a sense of reality of where the money is being spent.
That is why a good budget is necessary because not only will it teach you to manage and grow your finances but it also give you a lesson or sometimes a touch lesson in reality of where and how your money is being spent.
If after months of applying this method you are still shifting and moving money from one envelope to another then you have not applied this method correctly and the budget method has been ignored.
Why do you budget? To spend less than what you earn and potentially save and stop living from pay cheque to pay cheque.
Do you remember that word we used earlier in this article? Self-discipline! If applied correctly, this method can set you free from financial debt, anxiety, frustration and perhaps your dearly loved child that goes on and on about wanting that $350 electric car to ride on (trust me I've done it myself)! He may be tempted to say just take the cash out of another envelope, but your self-discipline will enable you to share your reasoning by replying "do you wish to eat less, risk not having electricity or a house to live in?".
Much to our discussion about reducing debt, have a read of the short article explaining how to reduce credit card debt.
Feel free also to post your comments or email us and share your experience on how the envelop budgeting system has worked for you.