Budgeting Through Envelope System
I think it’s last week when I opened my Facebook and saw in my news feed a post from Robert Kiyosaki that living within your means is a “poor mindset”. That we should not be contented to what we are earning and limiting our capacity to get what we want in life. That we should think or find a way how we could get the things that we desire. It’s because if we always live within our means we will not be able to get over our financial situation.
But on the contrary, how will be able to get out of debt if we always buy things that we desire whatever that cost? If we always think that we can buy and that is because there is a plastic card that can lend us money anytime and anywhere, how will we able to make ends meet if our income doesn’t permit us to do those things? Yes it’s really nice to think about those “mind setting” stuffs but we should somehow be realistic.
Is Budgeting the Real Answer?
I think this thing called budgeting is a way how to discipline ourselves on how we should spend our hard earned money. Some people don’t really work hard for their money specially those people who can make money work for them but they still do need some sort of budgeting. I just remembered my wife’s friend since the day they come to know each other 16 years ago, she always have the latest model of gadgets and up to now we always see her Facebook photos bragging her latest gadget bought by her husband. I was always thinking to myself why those people seems never to experienced lacking money. Her hubby works at one of the biggest bank, as an IT professional and seems have lots of money. So much for that, it’s really non of my business anyway. I’m just wondering why there are some people so lucky like them and there are some people who works all day with a very meager income that cannot make ends meet.
If you are in a category of people who have earnings that can afford more than the basic necessities in life, like those who can afford buying the latest gizmos and can go to the mall every week but still wondering why you can’t save money or cannot make ends meet, then I think you need to know how to budget.
Budgeting Through the Envelope System
- The first step you need to do is track your daily expenses. Tracking your expenses can be done by listing the things that you spend or the bills that you have paid. It’s kind of time consuming at first and boring for some people but you need to exert some effort to know where your hard earned money goes.
- Make a list of your monthly expenses and group them in categories so you would be able to sort which things that is important or not so important. Make sure you have listed everything. Things like House, Food, Clothing, Utilities, Personal can be used to group them as categories.
- Now get yourself some envelopes and label each of them according to the categories you have created and after you have completed the naming of the envelopes, get another one and label it, Pay Yourself First.
- Then distribute your earnings for the month on each of the envelopes, put according to the kinds of expenses you have allocated. Make sure fill the Pay Yourself First envelope, it can be 5%, 10% or 20% depending on how much you earn. Keep the envelopes in a safe place.
- On your daily routine, you should plan ahead which expenses you are going to pay first then you can get some of the money from the envelope or you can bring the whole thing. But for security purposes, estimate how much you are going to spend and bring only a portion of the money. For example, you want to treat your wife and your kids to eat in a fast food, just get a few bills instead of bringing all of it.
- If ever there is something left on your budget at the end of the month should be carried over to the next month’s expenses or budget. Or you can save whatever if left from the last month’s budget and include it in your Pay Yourself First savings. Saving is really important specially if you had an emergency where you don’t have to borrow money which will incur interests or if there are investment opportunities that you might encounter. For example, you saw a something on eBay and the item was very cheap or was an auction, you can seize that opportunity and buy the item then sell it again at a higher price.
- As much as possible don’t borrow from other envelopes if you used up the other envelopes in order to discipline yourself. But if you have made a mistake and you have forgotten to include some of the expenses, I think you can do it but be sure next time you have corrected the mistake.
- You can also use an Excel spread sheet to create your budget using the envelope system which is more convenient and safer. There is also an online envelope budgeting system called EEBA. They also have an android app that you can install in your mobile or tablets.