- Personal Finance
Basic Budgeting Advice: The Envelope System
Back to Basic Budgeting
Oh money why have you forsaken me? As I look into my purse I realize I may have to resort to dancing on the street corner for shiny nickels to pay the mortgage this month. It's time to get back to basics and get a hold of my finances. I need to return to the best financial advice I've ever been given and break out the cash envelopes. Basic Budgeting 101 here I come...again.
Some of you maybe scratching your head and looking at this hub with confusion. Let me clarify, envelopes are made of paper and in the olden days, before screens were permanently fixed to our hands, we used to put letters inside of them and mail them to people. They're not dangerous, apart from the occasional paper cut, but take the risk anyway. Put the smart phone down and pick up the envelope. (That is unless you're reading this hub on your smart phone and then you can have the smart phone in one hand and the envelope in the other.)
Budgeting: Don't let the Robot Overlords Trick You
Don't panic! I know some of you are still freaking out at the very idea of this archaic system, and the term "back to basics," my husband being one of you, but hear me out. (BTW, he adores technology so much, he even has an app on his phone that lets him pay for his coffee by holding up his phone to be scanned. I've warned him and I'm warning you, this is the first step to becoming a cyborg.)
I get that he, and many of you, love apps and computer programs that can track and do the thinking for you when it comes to your finances, however, I find them dangerous. Once something does the thinking for me I feel less connected to it. Out of sight, out of mind. (Another sign of our robot overlords I'm sure, so watch out!)
And I also understand that not everyone thinks the same way. So if your happy with your smart phone being the boss of you then by all means go back to playing Angry Birds and stop reading this. But if you are anything like me, back to basic budgeting with cash envelopes might be a better option. By returning to a tangible money system I am forcing myself to think about the money I'm spending, that's right, I'm the boss of me, not my phone. And, I find I connect with money differently when I count out bills to pay for something than when I slide a card and press a few buttons or have my phone scanned. Using cash makes the spending feel real and makes me feel accountable. I am not a robot gosh darn it! This is why I have returned to the cash envelope system.
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Basic Budget Template
Alright, before you get all marker happy and start randomly labeling your envelopes, sit down and make a budget first. You don't need anything fancy or computery to do it, just write out a list of your monthly expenses like rent, food, transportation and monkeys...oh wait they're a bi-yearly expense not monthly, different system altogether.
If for some reason your brain refuses to co-operate with you or you've forgotten how to use a pen, feel free to let the internet boss you around about what your budget is. Here are a few websites that are happy to do just that.
Budgeting is spelled F-U-N!
Now it's time to create your envelopes, so slap on some preemptive paper cut band-aids and get ready for some F-U-N! Realistically not everything on your budget can be paid for in cash, for example your mortgage/rent or automatically withdrawn loan payments etc. But anything that can be paid in cash should be assigned an envelope with a fixed amount of money put into it every month. These areas could include: groceries, clothing allowance, gas, gummy worms. If it's something you know you spend money on every month then give it an envelope!
The rules are simple, but the actual practice takes some time to get used to. Assign a fixed amount of cash for that category and put it in the envelope. Once the envelope is empty you can no longer spend on that category. Some people prefer to divvy their money up into weekly spending allowances rather then monthly and go to the bank once a week to make a withdraw. Assess your needs and spending habits to work out what will be best for you. A word of caution though: the less you go to the bank the better. If you limit yourself to one withdraw a month, you won't be as likely to overspend as you would with a weekly withdraw.
Sometimes you will fall short, unexpected expenses are a part of life, but I strongly caution you against borrowing from other envelopes. It is a slippery slope that will only lead to shortfalls in other areas and then before you know it, your budget will have fallen apart and you'll be whipping out the old credit card again. Instead, try to prepare for those unexpected expenses by allocating a fixed amount every month to miscellaneous or unexpected expenses. Some months you will need it, other months you won't. And instead of spending the unused amount, roll it forward to create a bigger cushion for yourself. It's an opportunity to break the "spend it while I have it," mentality and move towards a "save it while I have it," lifestyle.
The Bottom Line
Budgeting doesn't have to be complicated, nor does it require fancy gadgetry. You can decide to be the boss of you and your dollars by doing something as simple as using envelopes and cash. Take a stand against the robot overlords and reconnect with your money and yourself. You'll be glad you did...and you might just have enough left over for monkeys and gummy worms.