In the days the earth was cooling we used envelopes for mailing letters. Since mailing a letter has practically gone the way of the telegraph system and silent movies, we need to find a new use for them. Well, I know what it is.
It’s a great place to store money until it is needed. Here’s how it works: you create an envelope for each of your expenses. It is even better if you create envelopes for upcoming expenses, those that may not occur during the current month, such as money you want to spend a few months in the future, like a birthday for someone special.
The next step is to cash your paycheck and place the cash needed for each expense in its respective envelope. So, you’d have an envelope for rent, one for groceries, one for the holiday season, one for the electricity bill and so on and so forth. If you have any money from your paycheck that did not go into an envelope, that would be savings. What’s that?
If you were to create an envelope system, such as this, how much cash would you have left over? Would you spend it or deposit it in the bank? Be honest...
However, cashing your paycheck and placing all that cash in an envelope can be rather impractical, especially for those envelopes designated for something large, like the rent. So, what we need to do is create “virtual” envelopes to put our tagged monies in. One way would be to set up a spreadsheet with your bank balance immediately after depositing your paycheck and simply subtract all your expenses for the month. Would you still have a positive balance in your account at the end of the month? Perhaps you have an envelope or two that is too “full.”