Budgeting: The Envelope Method
Do you know how to budget? Lord knows I talk about it enough. If you look over my extensive posting history here, you’ll see that I talk about budgeting virtually all the time. But I realize that I haven’t been all that specific, so let me share a method that I started using a couple of years ago and continue to use to this day. It works really well, and I think you’ll find it to be an effective way to set your cash aside for the month.
Back in the day (I hate people who start things that way, but here I am…sorry) there wasn’t such a thing as autodeposit from your employer. You couldn’t just get your paycheck sent directly to your bank account. Checks actually didn’t really exist for most employees at companies, so instead they just got an envelope full of money. Pretty sweet, although a bit tempting to walk home with a big wad of cash and not blow it all at the local mead tavern.
Provided you got home with enough to keep your family fed for the next month, your wife would take the envelope from you and stuff the cash into various envelopes that were earmarked for different expenses. Five gold ingots for groceries, a shekel for clothing, perhaps a doubloon for going out on the town. With cash, it was impossible to go overbudget–in fact, there were pretty strong incentives for staying under. If you absolutely had to go over, you took cash from another envelope. That month, if you overspent on mutton, that means no new clogs for little Inga.
It sucks, though, because you can’t exactly do that nowadays. Virtually no one needs cash, nor is it exactly easy to pay things like your credit card bill or your student loans with just cash. You’ll have to do it electronically. But you can still earmark certain accounts for some things. I have an account solely dedicated groceries, and I’m opening new ING accounts to split up the rest of my finances. ING is nice in that you can do that easily–other banks aren’t quite as kind about it, but you can nonetheless use some tools to split up your different budget categories. ING Direct is one, and the PNC Virtual Wallet is a slightly different but awesome way as well.
The envelope method is a great way to keep track of what you’re spending and makes it hard to overspend, even when you feel like a splurge. In fact, one of the accounts I’m opening is called Splurges. I suggest that you try it. Do you have any tips or tricks to share? Let me know!