Envelope budgeting is one of the simplest ways to save money. It is also one of the oldest methods of saving money. Envelope budgeting allows you to keep a track of your savings and finances. It also helps you to avoid debts and loans. We will explain this later in the article but let’s first understand the mechanism of envelope budgeting.
What is Envelope Budgeting?
In envelope budgeting system, the person does not save the money in bank. Instead, they create envelopes for different savings. They put the savings in these envelopes and make the payments from these envelopes. Here is a step-by-step look on how envelope budgeting works.
- Create a budget. Write down the total amount of money you need to save in a budget. The following table represents how you will distribute the money.
- Now, create the envelopes. If you take the example of this table, you will need three envelopes. Write down the name of payment or saving on the envelope and keep them securely.
- Put the required amount of money in the envelopes regularly.
Some Tips to Maintain Your Budget
– Do not spend money on your wishes. Always spend money on your needs only, and that too, after considering your need at least twice.
– Make an extra envelope, named Extra. If you are able to save more money then put it in the Extra envelope. You can pay the vacation trip fee of your kid or go on a shopping visit with this money without disturbing your emergency funds.
– Always use the money saved in the envelopes for fulfilling your needs. Do not spend money from other resources.
– Budgeting apps can also help you maintain your envelope budget.
Should You Try Envelope Budgeting?
Envelope budgeting is not for everyone. It requires a lot of patience and control. In envelope budgeting, you need to realize the importance of living a debt-free life than winning over your dreams while drowning yourself into loans. It cuts the benefits of credit card. At the same time, envelope budgeting also makes you stress free. However, once you learn the art of controlled spending and frugal living, you will earn the following benefits that come with envelope budgeting.
– Envelope budgeting makes you debt-free.
– It allows you to buy your dreams on cash, and not on loan.
– It eases complicated spending in your life.
– Emergency funds and extra savings allow you to tackle with emergencies and complex situations without falling for debts and payday loans.
Drawbacks of Envelope Budgeting
– Envelope budgeting is simple and easy. However, it is suitable for people who spend the money controllably. When you have money at home, you may not resist spending it if you have bad spending habits.
– Secondly, it is a little time consuming. You need to create your budget every month.
However, despite these drawbacks, envelope budgeting is certainly a useful way of saving money, sticking to your budget, and living a debt-free life.