The Envelope System-A Creative and Practical Way to Manage Money
College is a difficult season for the piggy bank. Not only are we as students figuring out how to live well on our own, but suddenly there are all sorts of expenses and bills to be paid that we never knew about before, and this isn’t even stepping into the realm of the large sum of money that goes towards paying for college itself. It’s easy to take the credit card and swipe away when making purchases, but that isn’t financially healthy in the long run, and will eventually cause a great deal of hardship and stress. The envelope system is a simple and flexible money-managing technique developed by Dr. Dave Ramsey that, when properly applied, proves to successfully ease one’s financial difficulties.
The main premise of the envelope system is to work within one’s earnings. Each envelope represents a certain amount of money each month that you want to put towards a certain category. You can have as many categories as you want, and any amount can be put towards each separate category, but you must never budget over your earned income for each month. For example, one simple envelope system could have the categories of Food, Rent, Gas, Bills, Spending Money, and Savings. Each of these categories is one envelope. If I make $500 a month, $100 could go in the envelope category of Food, $250 could go in the envelope category of Rent, $50 could go in the envelope category of Gas, $50 could go in the envelope category of Bills, $25 could go in the envelope category of Spending Money, and $25 could go in the envelope category of Savings. The amounts, of course, could be changed to fit any budget, and would depend on the rent and average bills each month. You are only allowed that amount of money to spend on the certain category, and once that money is gone you cannot “borrow” money from elsewhere but rather must be frugal and wait until the next paycheck. It is also important to make sure that one envelope category is Savings, and a great amount to start saving each month is at least 10% of your earned income. Make sure that when implementing the envelope system that you keep a record of all transactions, purchases, bills paid, and paychecks earned. Keeping receipts helps with the maintenance of this record, and not only will you most likely be surprised by where your money is going, but keeping a solid record helps to provide a perspective of how each paycheck is being spent, and can help you understand what to cut out of your budget if need be.
It’s true, there isn’t a one-size-fits-all system for managing money, and one system will work for one person while another system will work for another person. Do find what works for you, and give it time. Getting used to any new system, especially one that deals with something as heavy and important as finances, can be difficult and time-consuming at first. I want to challenge you to try it, and give it a few months before quitting in order to grasp a full understanding of how the system works and if it will work well for you.
For further information and tips on the envelope system, visit “Dave Ramsey’s Envelope System” at http://www.daveramsey.com/article/dave-ramseys-envelope-system/lifeandmoney_budgeting/.