Could the envelope system work for you?

With tomorrow’s financial state so uncertain, many people are looking for ways to save money that best suits their capabilities and lifestyle.  The envelope system, which is also referred to as “cash stuffing” is a savings technique that seems new due to social media's influence, but is actually a throwback to simpler times.  It consists of simply dividing a portion of income into physical envelopes marked for each different expense.  By doing this the goal is to keep you on track, avoid overspending and stay motivated to continue saving. 

Setting up the envelope system can be easily done by following the steps below:
1. Decide which expenses get an envelope.  These should consist of expenses that do not have a pre-authorized payment method in place.  Some examples are as follows:
a. Groceries
b. Restaurants
c. Car maintenance and gas
d. Entertainment
e. Gifts (Christmas, birthdays, etc.)
f. Grooming (hair appointments, makeup, etc.)
g. Entertainment
h. Personal expenses

2. Decide on the budget amount for each envelope. 
This gives you the chance to review your budget and look for the areas where you may overspend, and gives you the opportunity to adjust accordingly.

 
3. Create and fill the envelopes for the budget categories.
From each pay cheque, take out half of the budgeted amount for the envelopes.  If you’ve budgeted $400 per month for groceries, you’ll take $200 from each pay to put in that envelope.  Do the same for each envelope.  Depending on your pay frequency and timing of the month for other expenses you might want to come up with a strategy to add cash to specific envelopes specific to your situation.

4. Spend only the cash that you’ve put in the respective envelope.
If you run out of cash from one envelope, it might be tempting to borrow from another, but that defeats the purpose.  To stay within the budget, it might involve putting stuff back at the grocery store that isn’t a necessity or putting off a purchase until the cash is available.

The main advantages that people are able to take from using the envelope system are as follows:
- Following the envelope system will help keep your finances on track. 
- It encourages discipline.
- It encourages you to hold yourself accountable.
- As long as you stick to the rules, it makes it hard to overspend. 

This system works best for expenses that are easily paid for with cash.  Expenses that come directly out of your bank account such as mortgages, insurance, car payments, work best by leaving those funds directly in your bank account to prevent any missed payments and NSF fees.
If you happen to have a great month and end up with cash remaining at the end of the month, it’s a great opportunity to reward yourself, or put that money in an envelope to save or to carry over into the next month as a buffer. 

One of the concerns with the envelope system is what happens in the case of an emergency? Unfortunately, emergencies do happen and it’s best to have a plan laid out prior to know what course of action is best to take, such as shifting cash around from envelope to envelope, or having an envelope specifically to save an emergency fund. 

If debt is holding you back from being able to take any savings techniques into consideration, it might be a good time to consider looking at your options to get you back on track!

If you are looking for advice, or a second opinion about your debt, it does not cost anything to talk about your options.  Every financial situation is unique and viable options can differ from person to person.  A conversation free of judgment is the first step to determine options for debt that make sense to you.  For a free consultation, please call or text (506) 645-1814 or email jaime@tackledebt.ca; or visit www.tackledebt.ca.