This old trick still works for saving money

Creating a budget seems to be a no-brainer. Everyone has his or her way of approaching it. You take your salary, subtract your bills, and if there is money left, you decide what to do with it. Is your method working for you? What are you doing with the money that's left? Is there money left? Are your bills being paid on time? Maybe there is a money leak. If so, it can seem as if there isn't any money to save. It takes some discipline, but an envelope method for budgeting can implement a system that helps you track spending and live within your means. It can teach you to pay yourself first, too.


Here's how to put this simple system into place.


THE CONCEPT: With the envelope system, you distribute your money into standard-sized paper envelopes, zippered pencil pouches or an accordion-style coupon organizer so only the money in each envelope category is spent. If there is extra in an envelope, it stays in the envelope, is applied to debt in another envelope, or can be placed in your savings envelope.

SETTING UP THE SYSTEM: The first envelope should be marked as yours. Place your name on it. Highlight it, so you remember to pay yourself first. Put the name and due date of your other bills on their own envelopes, too. You can write the amount you need to pay and/or the balance left. You can decide whether you want all of your bills to be categorized into envelopes according to priority and due date, or whether you want to use the envelope method only for expenses that fluctuate or you can pay for with cash, such as groceries, clothing, gas, meals out, entertainment and holidays. When you're paid, you withdraw the funds you need from your bank account and put it into the corresponding envelopes. When the bill is due, the money is simply in the envelope.


USING EMPTY ENVELOPES: Some people prefer not to place cash into the envelope. In this case, you can just write the amount of money needed and spent on the envelope to keep track or consider using monopoly money. There are also many services online, such as www.mvelopes.com, Dave Ramsey's envelope system, www.myspendingplan.com and www.budgetmap.com, to name a few.

ENVELOPE-SYSTEM BENEFITS: You can place your receipts into your envelope categories, too. This will directly show you where your money was spent and will help in your money-tracking efforts. Tracking your money is important to make progress with your budget. This system forces you to prioritize your wants and needs. It can help you track, save, and not charge if you're disciplined. For some, they feel they spend more if the cash is there, so the modified system could work well for those preferring to use debit cards or checks. Regardless of which you opt to try or what categories you organize, the envelope method is a simple organizational tool that is easy to start and maintain. To learn about whether or not this will work well for you, visit my envelope-budgeting forum (www.frugalvillage.com/forums).


Reported by: Sara Noel
Email: sara@frugalvillage.com
Sara Noel is the owner of Frugal Village (www.frugalvillage.com), a Web site that offers practical, money-saving strategies for everyday living. To send tips, comments or questions, write to Sara Noel, c/o United Media, 200 Madison Ave., 4th Floor, New York, NY 10016, or e-mail sara@frugalvillage.com.