Learning about envelope budgeting

Get in to the ‘envelope budgeting’ mode!

08:43 22 January 2014

The 1930s recession brought home the need for people to come up with ways to stretch their pennies. One of the ways that people learned how to budget their money and stretch their cash was to create different piles for different bills. Each one of the bills is placed into envelopes. These envelopes could easily be hidden in a variety of locations, something that was commonly done during the 1930s.

Unfortunately, the modern era of electronic banking has made using this type of budgeting system out of date. Most people do not handle everything in cash anymore. This does not mean that you cannot make use of a modified version. Many banks now offer the ability for you to open numerous savings accounts and designate them for specific purposes.

There are some significant benefits to using this type of system.

• Control – budgeting this way ensures you have control over your funds. You designate envelopes or in the more modern case, savings accounts, for a specific purpose. You put the necessary amount of money in it. You start by placing the money for your basic expenses and then separate your other expenses such as clothing or misc. When the account is empty, you have to wait on whatever it is, such as purchasing new clothing, until you can top up the account with money. It is a great way to have power over how much you are spending on extras.

 

• Saving for big purchases – this type of budgeting is great for saving up for debt payoffs or trips. You can place a certain amount every week or month into the saving account. It is kept separate from your other saving accounts and you are less likely to use up the money or spend it on other things that you would normally do.

Smart Tip: When you are budgeting consider compartmentalising your money to help you keep on track.

However, be sure to keep track on all of these accounts and watch out for getting overdrawn!