The envelope system has long been touted as one of the best money management systems. Unfortunately, most people no longer use cash. That doesn’t mean this system is useless. In fact, a number of people have started using a revamped version of the system. Thanks to reloadable gift cards, you can manage your money and not worry about all the hassle of drawing money out of your account. Here’s how to put a spin on the envelope system.
Look at Past Expenses
Before you can begin to control your spending, you need to know how much you’re spending. This means looking over your past bank and credit card statements. Separate expenses into categories (food, gas, etc) and add each category up from the past three months and divide by three. This will give you an average of what you’ve been spending.
Once you know what you’ve been spending on average, you can create a budget. While some expenses will not change (such as rent and car payments), variable expenses can change. Expenses such as dining out, groceries, entertainment, etc can all be altered to fit your budget. Set an amount you would like to spend each month for these variable categories and make sure once everything is added up, you still have money left over for a savings account and money that doesn’t have a specific “job”.
Purchase Gift Cards
After deciding how much you want to spend on certain categories, purchase gift cards with the total monthly allowance for each expense. For example, you might purchase a gift card at the gas station to cover the cost of gas, purchase a gift card at your favorite grocery store to cover food expenses, and you might even purchase a gift card at your favorite fast food restaurant.
Spend Money Wisely
When first starting out, it helps to try to spend very little during the first couple weeks of the month. This ensures that you have money to last all month. Another idea is to only spend a quarter of your budget each week. Some people may even find it useful to load cards weekly or bi-weekly so they don’t spend all their money at once.
Stop Spending When the Card Is Empty
Last, but not least, once the money is gone, it’s gone. You cannot refill the card until it’s time to do so and you cannot purchase items with your debit or credit cards. This will take discipline, but you will eventually learn to control your spending.
The original envelope system may seem outdated, but thankfully, there is a way to make it work in today’s card driven world.
About the Author: Dane Lutton loves studying personal finance and investments. He enjoys experimenting with different budgeting systems and has found envelope budgeting to be the most effective for his family. He also loves to studying the best pennys tocks to buy and hopes to one day start his own portfolio.