Enveloping your budget to beat debt

Katies-Head-Shot-TempBy Katie Smallwood

Chartered Accountant, mum of 2 kids

Why old-school technqiues could save your family budget

Sit down boys and girls and let me tell you a tale. A tale of a time where paper ruled and plastic was, well, not money-fightinvented yet quite frankly. In this time a person’s wages were paid in cash. Cold hard cash. There were no bank accounts, BPay or credit cards. When this money got home, assuming a lack of Robin Hoods and drunken shenanigans, it was divided up to be used for groceries and other household expenses. Again all paid in cash. Once all the cash was spent that was it.

While we have come a long way from those times, in personal hygiene standards alone, I think we have lost a touch of the simplicity of this method. Sure credit cards and the like have their place, though its hard to tell if people get into more or less trouble without them. Certainly the rise of the debit card probably speaks to this as well. With these you don’t need to carry cash everywhere, but you can’t spend the cash if you don’t have it in your account.

100dollar note oldI think selectively using this ‘envelope system’ is a good fit for most budgets. For instance, it would be an easy way to control spending on groceries, entertainment or birthday presents. It is far harder to go grocery-
shopping…hungry…and overspend the week’s grocery budget in one swoop on enough food to feed the French army when you cant just ‘charge it’.  If you have a budget of $100, and only physically have $100 then you can only spend $100. No matter how awesome an entire arsenal of Nerf would be for your son’s (*cough* husband *cough*) birthday.

There is also no borrowing from the envelopes for non-envelope purposes. If you have a ‘clothing’ envelope that the money keeps disappearing from mysteriously, you cant supplement it from the ‘eating out’ 3321230_origenvelope. For the large part, envelope budgeting is used for curbing your spending and doing this would defeat the purpose. However, at the end of the month if you have money left over in your envelopes – hurray! Either this is the opportunity to celebrate and treat yourself, save some money for a rainy day or pay off some debt.

For those who cant cope with withdrawing cash each time you get paid, or those who are hopeless slaves to technology, there are lots of apps or online resources that can be used instead of a physical container. This can also overcome one of the biggest downsides of using cash for budgeting – security. Ironic really, considering the safety concerns of Internet fraud! It is also only ideally used as a short-term solution to budgeting issues. Eventually you should get the feel for how to manage your finances and know what your financial limits are.

As always it is important to take any questions you have to your local friendly accountant.


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