Did you know a very simple, inexpensive every day item like an envelope can keep you out of debt? And if you're in debt already, envelopes can help keep you from going deeper. Sometimes they can even help you completely pay off your debts over time. How is this possible? The technique is called "Envelope Budgeting". It's a very simple yet powerful strategy to help keep your finances in line, make sure all bills are paid on time, and prevent you from accumulating debts you can't afford. Here's how it works: 1. Get a box of regular old mailing envelopes. 2. Write a bill or creditor's name on each envelope. Only write one for each envelope. For your standard household utility bills for instance, you might create envelopes with these words on the front: - Electricity - Water - Natural Gas - Rent/Mortgage If you have a car payment, create one envelope which says "Car Payment". If you have two cars you're making payments on, create a separate envelope for each one. Do this for every single bill or credit account you have. Be sure to include standard things like car insurance, newspapers and magazines too. Also make sure to create an envelope for each credit card bill you have, each outstanding loan you have, and any store or revolving accounts you may have. 3. Once you've created an envelope for each and every bill you have, then go back through them and write a dollar amount on the envelopes which have set amounts to pay each month. Your car payments and mortgage for instance, are usually the exact same amount each month. So write that amount on the respective envelope. 4. Each time you get paid, cash the check. Then divide that cash into each envelope you've created. If you're paid weekly, then put 1/4 of the total into each envelope each time you're paid. If you're paid twice a month, then you'd put half of the amount into each envelope. The end result will be: At the end of a one month time period, each envelope will have the exact amount of money it needs to pay that particular bill. And if you have extra money after filling each envelope, you could put that into either a "Savings" envelope, or a "Debt" envelope. Putting it into a debt envelope will give you the opportunity to apply that extra money to outstanding debts each month, and doing so will pay the debts down faster. Now, it's probably already occurred to you that this method seems quite old-fashioned and complicated. It's rare for people to actually "cash" their paychecks these days... they just deposit them into the bank instead, right? And yes, you are right. This is a very old-fashioned method of paying bills. It's also one of the most basic forms of budgeting ever created. And it works. You don't have to physically cash your checks and put that cash into actual envelopes if you don't want to. I have to say though, this physical act can actually make you much more aware of how much money you have, and how much you spend though. You can act out the same scenario "virtually" though, using your bank account and some software. You could just use slips of paper too, if you don't have time or inclination to set up and learn new software. The point is to start allocating, metering and tracking exactly how much money comes in and how much goes out. And creating and following an envelope style budgeting system is one of the very best ways to start taking more control of your finances. Once you've gotten the day-to-day spending and expenses under control, it will be much easier to start paying down some of those outstanding debts. |
