Do you have a monthly budget? If you don’t, there’s a good chance that you don’t know where your money is going each month. If you don’t know where your money is going, then it is going to be very difficult to lead a financially responsible life. You shouldn’t have a general idea of where your money is going either. Not having a handle on your money may lead you into a life of debt, and no one wants that. How do you start taking control of your money and budgeting? There are a bunch of methods, but one of the most popular methods is the cash envelope method.
It’s a simple, yet powerful way to budget your money. The method was popularized by financial guru Dave Ramsey, and has since been adopted by a plethora of financial experts. The cash envelope budgeting method works by dispersing your monthly pay (in cold hard cash) throughout different envelopes. Each of these envelopes represents a different monthly expense you may have, such as groceries or gasoline. The amount of money in each envelope is the amount of money allotted to any given expense. This means that if you have $300 set aside for groceries each month, you only get to spend what’s in that envelope, $300 cash, no more!
Before you go stuffing money in envelopes though, it’s important to plan out your envelopes. First, figure out what you need to have money allocated for each month, everything from groceries to entertainment. Once you have an idea of what you spend your money on each month, you then have to figure out how much you will spend on each category. Being realistic here is very important. If it is just you and your significant other living together, chances are you don’t need to spend $600 per month on food. Be honest with yourself, and stick to the budget you set. Your wallet will thank you in the long run!
The cash envelope method works for several reasons. Discipline, it teaches you how to really contain yourself. It is a hard lesson if you blow through an envelope too quickly. How about the fact that it makes you think about what you are buying? Seeing the cash in hand dwindle or the act of putting cash in envelopes helps builds a connection to your money. You are also forced to think about it frequently during the month, rather than paying a bill once a month. Okay, the final the reason the cash envelope budget works, you mentally turn things into a game and games reward our brain. Making it more likely you stick to your budget and reach your money goals.