Saving Techniques | The Envelope Method
- April 18, 2023
Saving Tip
Managing our spending can be challenging, especially when it comes to what are called “discretionary” expenses like entertainment, eating out, or our hobbies. These are areas where our spending can get out of hang because we fail to plan for them or limit ourselves.
It’s easy to lose track of how much we’re spending and end up overspending, which will blow your budget. And as we know, sticking to a budget when you are living on less is vital (especially if you are in debt review).
This is where the Envelope Method can come in handy.
What Is The Envelope Method?
Some households set aside physical cash into various envelopes for different expenses they have each month.
This could be rent or groceries, pay as you go data, transport or other day to day costs. It can also be for less immediate needs and be for some of your discretionary spending. You write the name of the expense on the outside and dip into that cash when you have one of those expenses. It is a way to visually and physically work to your budget.
The Envelope Method and Savings
For the purposes of our discussion in this series of savings tips we want to talk about using the Envelope Method for each of your different “discretionary” spending categories and dividing up that cash into labelled envelopes for those expenses. You may pay your other usual expenses via efts or online banking etc but for your discretionary items you use cash.
What is good about using this method is that once you’ve spent all the cash in a particular envelope, you can’t spend any more in that category until the next month. This method helps you stay on track with your spending and encourages you to be a lot more mindful of your expenses. As you watch the amount left shrink you will find you will naturally slow down and start to consider what you really do and don’t need.
Imagine having a specific amount of cash set aside for things like going to the movies, eating out with friends, or pursuing your hobbies. With the Envelope Method, you can do just that! First, determine how much money you want to allocate for each discretionary spending category. Then, put the cash in separate envelopes labelled for each category.
For example, if you decide to allocate R250 for entertainment, put R250 in an envelope labelled “Entertainment.” Then when you head off to the movies, half that money disappears leaving you only the other half to spend over the next few days/weeks. Once you’ve spent all the cash in that envelope, you can’t spend any more on entertainment until the next month. Sorry. You have to find free things to entertain you until then.
This method puts a tangible limit on your spending and helps you prioritize your expenses.
The Envelope Method can be especially helpful for those who struggle with impulse spending or have difficulty sticking to a budget. It forces you to be more intentional with your spending and encourages you to think twice before making a purchase. When you can physically see how much cash you have left in each envelope, it’s a visual reminder of how much you’ve spent and how much you have left for the month.
The Envelope Method can be especially helpful for those who struggle with impulse spending or have difficulty sticking to a budget.
It also helps you make conscious decisions about how you want to allocate your funds, as you’ll need to carefully consider your priorities and make choices based on what matters most to you.
By using the Envelope Method, you can gain greater control over your spending, be more mindful of your expenses, and ultimately save more money.
Do It Electronically
Having a lot of cash lying around at home can be something of a risk though.
Crime is real and you do not want to have anyone with sticky fingers making off with your cash. So, another option is to go digital and make use of the “savings pocket” feature offered by many banks on their bank accounts.
Nowadays, several banks provide the option to create savings pockets within one main savings account. Some banks will let you make 5 different ones or an unlimited amount. These pockets act like digital envelopes, allowing you to allocate money for specific savings goals, such as your all important emergency fund, the vacation fund, or even a down payment for a future big expense.
‘These pockets act like digital envelopes, allowing you to allocate money for specific savings goals’
Similar to the Envelope Method, you can set a specific savings goal for each pocket and transfer money into them to match that budgeted amount. This helps you visually track your progress towards your savings goals and ensures that you’re setting aside money for specific purposes rather than letting it all blend together in one account.
It’s a convenient and organized way to save money and work towards your financial goals. Best of all, if you have some money left over in one of the pockets you can decide whether to move it into the rainy day, emergency fund or whether to use those funds for that same expense the next month.
Image Credit: Image by frimufilms on Freepik