Some people avoid getting a grip on their finances because they just don’t think they’re good with numbers. Keeping track of your expenditures each day in a log can seem pretty tedious, and manipulating them in a spreadsheet isn’t at all appealing. So, how can you learn to account for your money without feeling like managing your finances has taken over your life? A simple change in your method of payment could be the answer to your problem.
One popular method for managing your cash, the “envelope method,” encourages you to switch to a cash basis for all of your purchases. Basically, after you’ve paid all of regular expenses such as the rent payment, utility bills, and car payment, you place all of your dispensable cash into labeled envelopes. The envelopes should be labeled according to their purpose; examples include food, entertainment, or gas. As you go through the week, pay cash for all of your expenditures out of the appropriate envelope.
To make this system work, you need to steer clear of using your credit cards. Only use the cash in your envelopes. If you just use a credit card after the cash in an envelope has run out, you’ll find yourself quickly in more financial trouble than you were in the beginning. However, if you stick to using only your cash, you won’t ever be able to spend more than you earn.
Once you’ve mastered staying within your allotted funds each week, you’ll find yourself ready to take your cash purchases to the next level. Make a new envelope for savings and designate a larger item that you need. Maybe the microwave is on its last legs and will need replacing soon. Maybe you’re due for a short vacation. Regardless of what major purchase is in your future, start putting some money into your savings envelope each week. Eventually you will have enough money to walk into the store, or travel agent’s office, and plunk down cash for your purchase. Imagine the satisfaction you’ll feel as you enjoy your purchase safe in the knowledge that you’ve already paid for it.
Switching to a cash basis for all of your purchases isn’t something that will happen overnight. You may plan badly the first week and find that you have to steal out of one envelope to make up for an unplanned purchase in another envelope. Don’t give up, though. As you gain more experience with this type of financial management, you’ll learn to appreciate its simplicity and wonder why you ever felt the need to purchase things on credit.
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2 responses so far ↓
1 Phil // Jan 30, 2008 at 10:23 am
This works great for me. I use one of those accordian canceled check holders instead of envelopes.
2 EmilyStarbuck // Jan 30, 2008 at 3:01 pm
I’ve found that using cash is so much harder because it’s so much easier to go through. I’ll spend cash right away…it just doesnt’ sit in my wallet for long. I prefer a debit card — it’s the same concept as cash (when it’s gone, it’s gone), but it’s not quite as simple to use, and you can actually track where your money went/goes with your online statement. With cash, you can’t see where that money went, and what types of spending you should cut back on.
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