Your parents had certainly adopted the paper envelope system to manage their budget. With technology constantly evolving, the underlying principles of this precept have come into being. The objective is the same: to ensure good financial health thanks to the budget planner workbook. In the digital age, it is easier toestablish a budget and stick to it.
What is the budget envelope system?
If you start to save, but you don’t know how to go about it, opt for the budget planner method. As its name suggests, it is a system put in place to manage your budget and save money more easily. On a daily basis, you probably deal with direct debits, mobile bank accounts and online transfers. However, it is worth noting that these particularly popular budgeting methods have existed well before this era. As a result, the digital budget envelope system constitutes a similar alternative to the paper budget envelopes of yesteryear. For make the budget envelopes, the operating mode has remained unchanged:
- Each expense category is associated with an envelope, which should be identified, by sticking stars of different colors on it for example, to avoid getting confused.
- Place the money intended to cover the expense in the corresponding envelope, as your salary is transferred to your account.
- Use the money in the envelope when it comes time to spend on a specific category.
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In other words, making the budget envelopes amounts to define a set of forecast expenses. You are free to divide the money between several distinct uses, such as food, clothing or rent, among others. The objective is not to exceed the overall amount planned.
How to make them?
The standard principle relating to budgeting remains unchanged using the envelope method. Indeed, it is important to define the main monthly fixed expenses and prioritize the corresponding envelopes. It could be :
- rent of €800;
- car loan repayments of €200;
- reimbursements of student loan of €100.
Total fixed expenses amount to EUR 1,100 per month. Therefore, it is necessary to put the amount of money corresponding to these expenses in three separate envelopes.
The next step is to allocate the rest of your money to expenses that vary from month to month. After paying for your fixed expenses, let’s say you have 500 EUR left. All you have to do is distribute them between your discretionary expenses, including for example:
- groceries (€300);
- clothes (€75);
- entertainment (€75);
- short-term savings (€50).
Then, put the amount defined upstream in the binder dedicated to each expense category. By respecting at all costs this system of financial management which has already proven itself, you are sure not to exceed the overall amount. Making budget envelopes allows you to avoid seeing your bank account turn red.
Empty envelopes and envelopes with still money: what should you do with them?
It goes without saying that this budget planner method makes your job easier and prevents you from being overdrafted. This is why it is essential to respect the basic rules and limit or even avoid compulsive purchases on items offered at unbeatable prices. Indeed, one of the main characteristics of this envelope system lies in forecasting and respecting your budget.
So, when an envelope is empty, it is necessary to be patient. You owe it to yourself to wait until the following month to spend more on a defined category. Above all, avoid dipping into your savings because you have gone beyond the limits by treating yourself to the latest smartphone of your dreams. Is what you are planning to buy overpriced? It is recommended to save enough in the dedicated envelope, waiting two months or more, before allowing yourself to do so.
Some of your envelopes contain still have money at the end of the month, even after delivery of your latest purchases? Two options are available to you. Either treat yourself to a movie night under the stars, or you decide to slip the remaining money into the envelope dedicated to short-term savings.
