Manage your money: The Envelope Budgeting method
Manage your future wisely, manage your money wisely.
If you google financial management tips, you’d find oceans of suggestions, answers, and tips on how you should manage your income – and ads.
The envelope method is perhaps one of the most commonly used methods, despite many of us not knowing that it’s named that way.
How does it work?
Back in the day, people would allocate their funds in many envelopes, each envelope with its own labels, like “groceries”, “house maintenance” and more.
This method helps them in properly manage their expenditures. So, whenever you’re thinking of getting something from the groceries, you just take the cash you put in the “groceries” envelope and never touch the other envelope’s funds.
This way, you can make sure that you don’t overspend, especially when it comes to food.
Do you need to carry all these envelopes?
Yes, if you’re living in the 1960s. Nowadays, there are software or apps that allow you to digitally manage your finance using the envelope method.
How to actually do it?
1. Create your categories
The hardest thing about the envelope method is to create these categories where you’d put your money in. Using our remaining three brain cells, categorizing our expenses can be a hurdle.
However, most people who use this method would divide their expenditures into:
– Eating out
2. Lay down the limits
After you’re done labelling your envelopes, it’s time for the second-hardest part of it, which is to put a limit on each category.
What we would suggest you do is calculate how much of your income is left after you’re done paying for mandatory things like rent/house instalments.
After you’re done with that, the remaining money will then be divided according to the gravity of each category. Ask yourself, which of these are necessities, which one is considered supplementary and which one is less important.
Another thing you’ll have to be aware of is that even if a category is considered a necessity, it doesn’t mean that the humongous amount of money you allocate there is appropriate. The key is to set it at a basic livable level. If you have more then add more.
4. Label ‘em
Well, it goes without saying that you need to put a label on them. What you need to label on the envelope is – first, the category. Second, the amount allocated in the envelope for the month.
The second label is important so that by the end of the month, you can see which envelope you overspent on, which envelope you can reduce funds on and how much of that can be carried forward or saved.
4. Put in the money and spend
After you’re done with all the planning, sorting and labelling, it’s the best part where you get to spend the money! Despite being the best part, it is also the most challenging one where you have to make sure you don’t overspend!
If you do, don’t — and we repeat — don’t ever dip your fingers in another envelope to make up for it, unless it is an emergency. Oh, a 70% discount on designer cloth is NOT an emergency, by the way.
Actually, you should prioritize yourselves in creating wealth, and not spending it. Of course, there’s nothing we can do about paying for our daily food, or the roof we live under, but if you have some extras for the month — it’s better to set it aside for savings or investments.
All in all, this is only a method. Whether your money can be managed appropriately will have to depend on your own discipline. Know when to spend, know where to spend, and know what you should spend on and what you can save for later.
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