Budgeting in Style - The Envelope System

My Cash Envelope System

I know that many people hates budgeting. I understand that listing down all your expenses everyday to the tiniest detail can be a tedious job. 

I too feel the same way. When I tried that technique before, it only lasted me for a week then I was back to my old routine of being unconscious with my spending.. 

But I learned another budgeting style that worked for me. In this technique I don't have have to list down my expenses everyday.  I also find it easy to implement because I only do it once or twice a month right after I receive my paycheck, after each pay period. But it definitely helped me from overspending, it organized my finances and now I spend my money more wisely.

This is called the Cash Envelope System. 

There are different varieties of this system. Others call it the Money Jar System. But the concept is just the same. 

Both systems entail separating your income into different accounts for specific purposes.

To implement this system you need to :

• Have several envelopes or you can buy a cash envelope with several dividers inside like the one I'm using (refer to the picture above). Or you can also use several jars

• Decide what categories you will be using for your budget and label you envelopes/jars accordingly. 

          Let me share with you my categories and the corresponding percentage based from my total income. This was derived from T. Harv Eker's Money Management System:

        

          A. Financial Freedom Account (FFA) - 10%

          This is the money that you will NEVER spend and can only be used to purchase passive income streams or investments that will grow your money. Examples of these investments are stocks, mutual funds, UITF,  insurance, government securities or capital for your business. This can be your retirement account. Think of your FFA as the golden mother goose that lays you golden eggs! 

          B. Long Term Savings for Spending (LTSS) - 10%

          This is my emergency fund. The money I put in this account are kept in the bank for easy withdrawal. This can also be used for major expenditure like house repairs, children's education, hospitalization expenses and for other emergency purposes.

           C. Give - 10%

           Giving back to God is my first expense. I allot 10% of my gross income for tithes and for 
donations to my chosen charity and foundations.

Envelope System

           
            D. Necessities - 50%

            This is the account I consume to settle all my essential bills such as phone bills, electricity, food, clothing, transportation, gym, etc. If you can't survive on 50% of your income, then perhaps you have to analyze your spending habits... simplify your lifestyle. 

            Remember to ask yourself when purchasing things - "is this a want or is this a need?" I have found that i want a lot of things but i do not need them. This has saved me a lot of money.

             E. Play - 10% 

             This is my favorite account. It's my favorite because I believe that you don't need to be a miser in order to become rich. You have to feel good about yourself and have some fun!  

              I spend this account every month to pamper myself. Like having a haircut, massage, manicure, pedicure, eating out in my favorite restaurant, watching movies, etc. I spend all of this Play money every month so that I will feel good about having money and spending it! However, if I need to save up for things such as travels or gadgets that require a little more money, I accumulate my Play money for  few months before I use them.

             F. Education - 10%

              I love learning new things. That's why I have an account that would finance my need for continuous education, such as for books, seminars and trainings.  

That’s it!

Anyone can use this system regardless of how much money they earn.The percentages are not fixed and can vary depending on your spending needs.  What makes this system effective is that it enables you to develop a habit of managing your money. It may take some time to get used to this new way of budgeting but you need to have the discipline to stick to this plan and to make it work. 

Getting Started...

"I want to start saving but the amount I'm earning now is just enough to pay for my expenses and I still have credit card debts to pay...I have nothing left to save! How do I start?"


Sounds familiar?


This is my line before which I know some of you can relate with. A lot of times I tried to build up my savings but my efforts were in vain.


This was my old money management method:


INCOME - EXPENSES = INVESTMENTS/SAVINGS


Every payday after I receive my salary, my old habit was to pay off my expenses/bills first then go to the mall to look for interesting things to buy or spend for the activities that I enjoy doing, such as watching movies, dining out with friends or traveling. There was no conscious effort on my part to control my expenses because I thought that I had enough cash to last up to the next payday and some pesos left for savings.  However, if you will ask me, "How much were you able to save?" My response would be "zero!" There was nothing left! And this was a never-ending cycle for years.


But through financial education, I realized that for the longest time I was managing my money the wrong way.


When I became a member of the Truly Rich Club and from reading financial literacy books, I learned that the right formula to become rich is this:


INCOME - TITHES & INVESTMENTS = EXPENSES

We need to make a conscious effort to form a habit of allocating a percentage of our income first for tithing and investments before our expenses.


TITHING 

photo source:
http://powerofleadership.wordpress.com/

I admit that I don't give tithes before purely out of ignorance. I didn't understand why people gives 10% of their income to the Church which I felt was way too much! I even had negative feelings toward that act. 


But when I attended a session in The Feast where the talk was about tithing, everything became clear to me. 


I realized that tithing is not a law but a symbol of love. Our first expense should be given to our Almighty Father because everything that we have, including the source of our income came from him.  It is a symbol that our lives belong to God and we are thankful for all the blessings that we continuously receive from Him.


When I started giving tithes to the spiritual family that nourishes me, I received a lot of blessings and opportunities and I want you to experience that too.


There are several verses in the bible that talks about tithing. One of these is from Malachi 3:8-10.


Will man rob God? Yet you are robbing me. But you say, 'How have we robbed you? In your tithes and contributions. You are cursed with a curse, for you are robbing, the whole nation of you. Bring the full tithe into the storehouse, that there may be food in my house. And thereby put me to the test, says the Lord of hosts, for if I will not open the windows of heaven for you and pour down for you a blessing until there is no more need.


Give back to God, and you will receive blessings ten folds! 


INVESTMENTS

photo source:
http://powerofleadership.wordpress.com/

Next would be building up your assets. Robert Kiyosaki defines "assets" as things that generate cash inflow or that will put money in you pocket, such as rental properties, businesses, and other forms of investments that would give you passive income such as stocks, mutual fund, UITF, and government securities.


After allocating a portion of  our income for tithes and investments, then the remaining money can be spent for our expenses. 


In my next blog, I will teach you a simple technique I'm using to manage my expenses.