What is envelope budgeting? How it helps you save more
What's the story
Envelope budgeting is a tried-and-true method to keep your finances in check by dividing cash into various "envelopes" for expenses.
It allows you to keep a tab on your spending, prevents you from overspending, and helps you save like a pro.
By distributing money into envelopes, you can visualize your monthly spending with ease.
Here are five steps to ace envelope budgeting and take control of your finances.
Goal setting
Set clear financial goals
Start by defining your financial goals. Figure out what you want to accomplish with your budget, be it saving for a vacation, paying down debt, or building up an emergency fund.
Having specific goals will dictate how much money you put into each envelope and keep you motivated to adhere to the budget.
Expense categories
Categorize your expenses
List down all monthly expenses and categorize them. Common categories include groceries, utilities, transportation, entertainment, and savings.
Assign a certain amount of money to each category, depending on past spending habits or desired limits.
This way, you'll ensure that every dollar has a purpose and you'll be less likely to make impulse purchases.
Fund allocation
Allocate funds monthly
At the beginning of every month, allocate your income into the specified envelopes based on the amounts allotted for each category.
Prefer cash to the extent possible as it gives you a physical understanding of your spending boundaries.
If opting for digital methods such as apps or spreadsheets, make sure they closely resemble the physical envelope system for uniformity.
Spending tracking
Track spending regularly
To control your finances, you should keep a close eye on your spending, month-long.
This means keeping all receipts and noting down expenses as and when they are incurred.
This way, you can spot patterns in your spending, flagging the areas where you're overspending consistently.
Plus, you can also identify categories where your money remains unspent, hinting at a possibility of reallocation.
Budget adjustment
Adjust as necessary
Review your budget by the end of each month, and make necessary adjustments based on actual spending patterns versus planned allocations.
If some envelopes are left with excess funds while others fall short regularly, consider revisiting the amounts allocated per category for better alignment with real-life needs and priorities moving forward.