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Tue 2 Mar 2010 09:00 AM

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Save more cash with ‘Envelope Budgeting'

The ‘Envelope Budgeting Method’ will do wonders to curb your cash splurges, says Dr Finance.

Save more cash with ‘Envelope Budgeting'
Create different envelopes for each of the above spending categories and put the budgeted cash in each of the envelopes

If last week’s tips on household budgeting may have helped you plan your expenses, the ‘Envelope Budgeting Method’ will ensure that you stick to your budget goals in each of the spending categories that you’ve identified.

As I’d promised in my previous post , this method is easy, practical and most importantly – effective.

Here’s how you can save loads of cash by using 'The Envelope Budgeting Method': [ Click here to view the Envelope Budgeting Method slideshow ]

• Make a list of your spending categories for the month/ week (whatever your time period). For this, you can use Dr Finance’s FREE Budget Planner [ click to download the Budget Planner ] – that way you can set yourself spending targets and also track how you’re faring along the month.

• Decide a permissible spending amount for each category.

Make sure your allowances in the category are reasonable, yet ruthlessly restrictive. Remember, your goal is to maximise your savings by eliminating any cash splurges that are not at all needed to lead a content life.

• Withdraw from your bank only as much as is needed to meet these expenses (barring cash for emergencies).

Money has its own feet – the more cash you’ve in hand, it usually finds its way out of your wallets even before you realise it.

• Create different envelopes for each of the above spending categories and put the budgeted cash in each of the envelopes. [ Click here to view the Envelope Budgeting Method slideshow ]

This means name the different envelopes with their appropriate titles: ‘Groceries’, ‘Entertainment’, ‘Dining Out’ etc.

• Whenever you spend money hereafter, use ONLY the cash from the relevant envelope for the particular category.

A little advance planning of your spending might ensure you don’t forget to carry the right envelope.

• Once you exhaust the money from that envelope, you cannot spend anymore on that category during that period.

Of course you can do it – don’t you have only limited chances in your favourite computer game? Three strikes and you’re out! This will also encourage you to plans and spend more carefully.

• In case you save a bit, you can apply the saving as per your own discretion: transfer it to another category for the same period or use the surplus in the same category in the following time period or else, just add it to your savings account.

For example:

If you allocate for the month of March:

AED 1000 for Groceries

AED 500 for Entertainment

AED 500 for Dining Out

If you spend the AED500 in the envelope assigned for Entertainment, say by March 19, you cannot spend on it any more during the month.

However, if you estimate by March 25 that you have spent only AED 200 (out of AED500) for dining out and have no further dining plans till the end of the month, you may transfer the saving into the ‘Entertainment’ envelope.

Alternatively, if you choose not to permit yourself to spend on ‘Entertainment’ in March – you can put the AED 300 savings for March as additional allocation in the ‘Dining Out’ envelope for April.

Meanwhile, if you have saved around AED200 from your ‘Groceries’ envelope and put it away as pure savings, then your envelopes for April will look like this:

AED 1000 for Groceries
AED 500 for Entertainment
AED 800 for Dining Out (usual monthly allocation of AED500 plus AED300 from March’s envelope)

You might take a couple of weeks to master this method, but once you can do it ably, the method is quite effective.

Happy saving and do write in to say how this method helped you!

LET ME KNOW : Did you find the Dr Finance Budget Planner useful? How has it helped alter your spending habits? Do write in to share with your fellow readers.

Disclaimer: While we have made efforts to ensure the accuracy of our content (consisting of articles and information), neither this website nor the author shall be held responsible for any losses/ incidents suffered by people accessing, using or supplied with the content. For expert financial/ legal opinions consult a qualified professional.


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Monica 10 years ago

Nice suggestions, but high on administrative issues such as ensuring various envelopes are made and then carried along in accordance; instead, why can't just one envelope be made (after appropriate budgeting) titled "Compulsory Saving" where at the beginning of the month the savings are put and not touched; the rest can stay in the bank for use....Just a thought.