My grandparents lived through the great depression, thereby greatly influencing their financial decisions. My grandpa used to say that cash was king. In today’s turbulent times, this statement needs to be echoed – Cash is King. Stop using your credit cards now – and start using cash for your new purchases.
People who find themselves in financial hardship usually do not end up there because of a single mistake or a single reason. Reasons abound: plans don’t work out, jobs are lost, emergencies happen, and life sometimes just throws us a curve ball. Regardless of how you ended up strapped, you can get out of the problems you are now facing.
Before you ever get started, try to ease yourself into any adjustments. You’ll need to get used to the changes so you don’t fall back into the same old patterns. For example, the first step to getting out of a financial mess (assuming you have income) is to start saving ten percent of each paycheck. The second step is to start using cash for your new purchases.
The envelope system of budgeting is not new. A quick use of the Google search engine results in millions of webpages. Writers praise the process but very few actually explain how to use the system to your benefit. Today, I’ll show you how to use envelopes of cash to train yourself to stop using credit cards for new purchases.
Specifically, today’s hint is showing you how to use the envelopes to help monitor and curb your spending on food. Once you have food expenses down then you can move forward using the same envelope system with other monthly expenses. Yes, that’s right. This system will work for any of your new purchases (and you will use cash from now on, right?).
Several years ago I required myself to use envelopes. Why? I was not using credit cards well and needed to break myself of the habit. Also, I spent too much money. Finally, my income dropped and expenses were greater than my income. The envelope system helped me focus and kept me from making bigger mistakes.
How the Envelope System Works
First, grab five small envelopes in which cash fits. Clearly label each envelope: week 1, week 2, week 3, week 4, and week 5. Next, decide how much money goes into the envelopes. Finally, you’ll use the first envelope during the first week, the second week’s envelope is used during the second week, and so forth.
How much money is right?
Deciding how much money to put into each envelope is the real trick for getting expenses under control. Some experts suggest figuring out a budget first. I’ll go one easier. Simply find out how much you have been spending on food each month. If you haven’t been keeping track then you may find that your bank’s online system has the expenses organized for you. If your bank doesn’t do this for you then take a piece of paper and start writing down every time you spend money on food. Keep this piece of paper with you at all times. It’s amazing that even simply writing things down on a single sheet of paper can sometimes stop you from spending.
How much money belongs in each envelope?
Once you know the amount for the month you have been spending on food then place one-fourth the amount of the total into each envelope. For example, if you were spending $400 per month on food then place $100 into each envelope.
Why the fifth envelope? Some months have five weeks and so you’ll divide your total expenses by five and place that calculated number into each envelope.
Once the envelopes have the cash, store these into a desk drawer. Use the money from the corresponding envelopes for buying food (grocery store, eating out, etc). Be careful because once the money is gone for the week then you are done and you don’t want to starve.
Any money left over should be placed into a money jar (you do have one, right?). The money jar is a great way to collect coins. Now, your money jar also collects the cash left in your envelope.
OK, I survived the month. Now what?
Here comes the real benefit. Now that you know you can survive with the cash in the envelopes then remove 5% for the next month. In this post’s example, I used $100 each week. Therefore, on the second month place $95 into the envelope.
On the third month, you will decrease the amount by 5% again. Keep going each month until you have reached 80% of your initial expenses. If you feel you can cut more (stop eating out !) then keep going. But don’t hurt yourself.
It’s working!
Yes, the envelope system works. Once you are well trained to use the envelopes, expand the process for one other expense. For example, I started with food and next went to gasoline. It’s your choice.
Congratulations on getting your expenses under control. Let me know how you are doing. Let me know if something fails or if you have great success.
