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The Money Saving Envelope Method: How it Works

A guide to the viral money saving envelope trend.

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It’s easier than ever to spend money. With credit and debit cards, people can go weeks without seeing their cash.

Unfortunately, the money you spend when you tap your card does actually exist. If you’ve got in a spiral of spending out of your budget, sometimes you just need a visual reminder of how much money you actually have to spend.

Enter cash stuffing, AKA the money saving envelope trend.

Understanding the Basics of the Money Saving Envelope Method

The envelope method is a budgeting technique that involves using physical envelopes to allocate and track your expenses. By giving each envelope a specific category and filling them with the allotted amount of money for each category, you can gain control over your spending and make conscious decisions about where your money goes.

What is the Money Saving Envelope Method?

The envelope method works by dividing your income into various categories, like groceries, transportation, entertainment, and savings, and allocating a specific amount of cash to each envelope.

By physically separating your money into different envelopes, you can visually see how much you have left to spend in each category. This method helps you to be more mindful of your spending habits and helps prevent overspending.

The Benefits of Using the Money Saving Envelope Method

There’s a reason the envelope method is such a  popular budgeting technique. It offers a way for people to reconnect with their money and regain control of their finances. This method encourages financial discipline, reduces impulse spending, and helps debt reduction.

Encourages Financial Discipline

One of the key benefits of the envelope method is that it encourages financial discipline, especially when you’ve gotten used to spending freely with a card. When you only have a specific amount of cash allocated for each category, and you can see it in front of you, you're less likely to overspend.

Imagine having separate envelopes for groceries, entertainment, transportation, and other expenses. Each envelope contains the exact amount of cash you've allocated for that category. As you go about your daily life, you'll be more mindful of your spending habits. The act of physically taking money out of an envelope and seeing it disappear with each purchase forces you to think twice before making impulsive decisions.

The envelope method also allows you to prioritize your spending. By assigning different amounts to each envelope, you can ensure that your essential expenses are covered first. This method helps you establish a clear line between needs and wants, helping you to make more informed money choices.

Reduces Impulse Spending

You know the feeling. You start the month with a solid budget in mind. And then the targeted ads get you, you decide to treat yourself one too many times, and you’re left wondering where all your money went.

With the envelope method, you're forced to think twice before making spontaneous purchases. Having to physically take money out of an envelope for non-essential items can make you pause and consider if it's truly worth the trade-off.

The envelope method basically helps you be more mindful when it comes to spending. Instead of mindlessly swiping a credit card or tapping a payment app, you have to consciously handle physical cash.

Helps in Debt Reduction

Another advantage of the envelope method is its effectiveness in debt reduction. By focusing on specific categories and actively managing your spending, you can allocate more money towards paying off your debts.

For our ✨ visual learners ✨ out there, the money saving envelope method provides a visual representation of your progress, motivating you to continue working towards becoming debt-free.

Let's say you have a debt repayment envelope alongside your other expense envelopes. As you allocate funds towards debt reduction each month, you can see the envelope filling up with cash. On top of this, the money saving envelope method helps you identify areas where you can cut back on spending and redirect those funds towards debt repayment.

How to Implement the Envelope Method

Determining Your Budget Categories

Before you can start using the envelope method, you’ll need to decide on your budget categories. Begin by listing all your essential expenses, like  rent/mortgage, utilities, groceries, and transportation. These are the expenses that you need to cover each month.

Then, consider the “want” categories like entertainment, dining out, and personal care. These are the areas where you have more flexibility in spending. Tailor the categories to your specific needs. For example, if you have a goal to save for a vacation, create a separate envelope for that purpose.

Allocating Money to Each Envelope

Once you have decided on your budget categories, it's time to allocate the amount of money for each envelope. Start by calculating your total income for the month.Now, divide your total income into the categories based on their priority. Allocate more funds towards essentials, like rent/mortgage and utilities, since these are non-negotiable expenses.

You’ll want to consider putting a portion of your income aside for savings or debt repayment. Building an emergency fund or paying off high-interest debts should be a priority in your financial plan.

Spending According to Your Envelopes

Now comes the real challenge – sticking to your spending limits. The envelope method requires discipline and diligent tracking of your expenses. Each time you need to make a purchase, only spend money from the appropriate envelope for that expense.

For example, if you need to buy groceries, use the cash from your "groceries" envelope. If you run out of money in a particular envelope, you'll need to reallocate funds from a non-essential envelopes. The goal is to avoid borrowing from other envelopes as much as possible.

Keep a record of what you spend. At the end of each month, take some time to assess your progress. Did you stick to your spending limits? Were there any unexpected expenses that you need to account for in the next month's budget?

Based on your notes, make adjustments for the next month if you need. Perhaps you need to allocate more funds to a specific category or find ways to reduce spending in another area. The envelope method allows you to be flexible and adapt your budget as your financial situation evolves.

Common Challenges and Solutions with the Envelope Method

Dealing with Unexpected Expenses

One of the common challenges with the envelope method is that unexpected expenses can throw off your budget. For these situations, it's a good idea to have an emergency envelope or an "overflow" category where you can temporarily store extra money. This allows you to handle unexpected expenses without completely derailing your budget.

Adjusting Budget Categories Over Time

As your financial situation evolves, so should your budget categories. It's important to regularly revaluate and adjust your envelopes to reflect changes in your income, expenses, and financial goals. Stay flexible and be willing to make modifications to ensure that your budget remains effective and aligned with your current needs.

Or get AI to do all this for you 🙃

The money saving envelope method can be a great way to go cold turkey on overspending, and truly reconnect with the value of your money. But if this all sounds too time consuming in the long run, we’ll just mention that our free money app Cleo can:

  • Track and categorize your spending
  • Create you a personalized budget
  • Send you reminders when you’re close to spend limits
  • Automatically calculate and allocate savings funds

Enjoy this post? Give it a share or send it along to a friend. You never know, it could make a big difference. Big love. Cleo 💙

Hey! If you’re in a tight spot, Cleo could cover you up to $250.1 No credit cards. No interest. No stress.

Still have questions? Find answers below.
What is the money saving envelope method?
How does the money saving envelope method encourage financial discipline?
Does the envelope method help in reducing impulse spending?
What are common challenges with the envelope method and their solutions?
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