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.