13 years ago my husband and I were in financial strife. I was teaching full time and my husband was a social worker. I know we were doing o.k. according to some standards, but the reality was we were barely making it. Every month we found ourselves scraping to live off of $20 for the week. We just couldn’t understand where all of our money was going!
Then one day our close friends and mentors showed us a trick that would forever change where we were financially. Regardless of how much or how little we ever made. They taught us the envelope trick. Here’s how it works.
1. Grab some envelopes and label them according to your expenses. For example:
- Food
- Entertainment*
- Miscellaneous*
- Child Care
- Electricity
- Cable
- Car(s)
- Water
- Rent
- Gas
- Etc.
Create an envelope for everything!
2. Now estimate your expense amount for each item and label the envelope with the correlating expense. (Don’t drastically over estimate it, just within $20-$30 or so.) For example, you could label the Child Care envelope $500, the car(s) envelope $600 etc. Make sure you create a Miscellaneous and Entertainment envelope and create a reasonable limit! Don’t over estimate with these envelopes… keep it realistic and don’t overspend!
3. Now, decide which paychecks should pay for what expense. In our case Food and Electricity came from my paychecks, and Car and Rent came from my husbands paychecks. It will be different for everyone depending on how and when you get paid (bi-weekly, weekly, and so on). For us, our paychecks were bi-weekly, so we would get at least 1 check a week.
4. Once you’ve decided what bills to assigned to each paycheck take out the specified amount of cash for on that pay date. I.E. if I get my check on Friday, it should cover the cable and water bills, then I would take out that exact amount of money IN CASH and place it in the corresponding envelope.
I know you may feel uncomfortable with a lot of cash around your house (I did), but understand that this isn’t something that you’ll do forever. Just use this method until you’ve trained yourself not to over extend your budget. What ever your expenses are, don’t go over that budget! (If you do, that’s what the miscellaneous envelope is for ☺!) Stick to what’s in the envelope (or try really hard to). You may find that you’re overspending in a certain area, and can cut back. Or, you may realize that you may need to budget for more money in certain areas than others.
Either way, this is a great visualization of where your money goes on a daily, weekly, and monthly basis. Then, once you’ve managed to stick to your envelope budget for a while, you can slowly ween yourself off and return to business as usual. This method has helped my husband and I stay on track for years. Now, if we ever slide off into “Over Spending Land” we just break out the envelopes for a while and get back on track. It really works wonders!
Try the envelope method and let me know how it turns out! I’d love to hear from you!
You know, sometimes it’s not lack of financial planning that causes stress, it’s just lack of money. Are you seriously looking for ways to create extra income for your family?
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