Saving With the Envelope System

Adam Rust

Before you can make a budget, you have to learn where you spend today. On average, people use their debit card more than twenty times in one month.  When you have only one account, putting all of your spends into categories can be relatively easy.

Recognize the difference between things you need and those you want: Are they for items that you needed or for things that you merely wanted? Short of moving, it is hard to reduce lower the cost of rent. If you get health care at work, then your premiums are probably established by your human resources department. Buying a new sweater is different because it is probably not a necessity. Some experts contend that your “want” spending should never make up more than thirty percent of your overall budget. At least half should go for things that you need, with the rest set aside for savings. Most people find it hard to save that much, but that doesn’t mean you shouldn’t aspire to save in the first place.

Note: Every WiseWage cards comes with a savings feature.

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Once you have a budget, create the structure you need to hold yourself to your plan. One famous financial columnist recommends the “Envelope System.” A strength of this approach is its simplicity. At the beginning of the month, set aside about fifteen envelopes. Label them with your most common expense areas: gas, groceries, utilities, clothing, rent, school supplies, car repairs, etc. Include one for things you will purchase as a splurge. Make your budget by putting cash into each envelope, according to how much you can afford. Put all of the envelopes in a convenient spot - like your dresser or a nook in the kitchen. When it is time to spend on something, reach for the envelope. But the key thing is to have the discipline to use those funds – and no more – for your expenses. If you cannot overspend in any category, then it is likely that you will have something left over at the end of the month.  

Once you have done this for a few months, you will be ready to assess your habits. Did your spending – both for “needs” and “wants” turn out to be consistent with the funds you set aside in those envelopes? How much of your expenses are for things that you didn’t need? Most importantly, did you save money?

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