The Envelope System: Key to Controlling Your Money

In our credit rich society, you may or may not have ever heard of “the envelope system” when it comes to your bills. The envelope system relies on using cash and pre-setting aside a specific amount every month for each specific category to limit overspending. If you get paid biweekly, you would take 1⁄2 the budgeted amount for a category item and set it in the category envelope each time you get paid. If you get paid weekly, you will take a quarter of the total monthly amount you allotted and set it in accordingly. While it may seem tedious, there are some notable reasons to try using this system for yourself. Let’s explore those here:

1. The envelope system helps control your spending. When you only use the cash allotted for an expense, there is no risk of going over budget. This essentially puts a stop to your spending when you hit your max, but also gives you the opportunity to visualize your spending so you can see when you are getting close on your budget. There is a little bit of fear that strikes when you realize that 5 days into the month you only have $100 left in your grocery envelope. Or when you want to go out to eat tonight, but you only have $25 left in the envelope and you already have plans to go out Friday that will wipe that amount out. Having a cash limit makes us more accountable to what we have spent and how much we have available to spend for an allotted amount of time, making financial decisions clearer.

2. Stop Paying Interest. Using cash to pay for consumable needs like gas, groceries, entertainment and the like assures that we are not putting these expenses on credit cards and stacking up interest in our daily needs. It kind of stinks to think that we are paying interest just to live, right? By getting used to using cash, we stop relying so heavily on credit cards as a way to live and may eventually be able to give them up altogether. That is some food for thought.

3. It is harder to spend cash, especially when you only have a set amount put aside. Again, credit cards give us a sense of comfort, knowing that there is “money” available to us. But what we mentally fail to realize is that it does not belong to us. We have to pay it back. And if we don’t do it by the next month, we pay interest on top of the initial purchase. Even using a debit card tends to be easier than using cash. There is something about having to hand over those dollar bills that hurts more visually than a debit card. If spending hurts more when using cash, you will be less likely to overspend and may even find yourself saving more on top of the amount you set aside.

Many of us, unfortunately, grew up with less than exemplary habits around money being taught to us unknowingly. In our everyday lives, we tend to stick with what we have learned unless we make it a point to change. Using a system like the envelope system can help train your habits and mind to work in a different way. You can learn to conserve and only using what you have available to you in the given moment rather than relying on debt and credit to get by. While hard at first, once you learn and get used to the system, you can find yourself flying through it and feeling more control over your money, providing more stability in your future. Learning better habits and improving your actions around money is a time investment well worth the reward.

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