Like “Cancun, $1,200 in 12 months at $100 a month,” and so on. Then the vacation fund with the same format the more detailed the better. Then, for the emergency fund, which should total at least three times your fixed expenses, write on the envelope “Emergency fund $3,000, fund in 12 months at $300 a month” and add $300 of the $500 left.
For example: “credit card debt $6,000, pay it off in 12 months at $500 a month.” This way, it is clear how much you must put in the envelope ($500 of the $1,000 left). I recommend writing on each envelope the goal, the amount, the date and the monthly contribution. Next on that list should be your emergency fund so you have a cushion and can avoid future debt. High-interest credit-card debt should be one of your top priorities for paying off since interest rates are on the rise. With the $1,000 left, I recommend distributing it in seven more categories such as emergency fund, paying off debt, vacation, education, housing, business and retirement. The updated method has been adapted to our 20th century reality and it works best if you follow these tips.Īssuming you stuffed your envelopes under the obligation/need category, any money you have left is for you to spend based on your priorities.įor example, let’s say that from the example above, you have $1,000 left because your income is $3,000 and you used $2,000 to cover for your obligations. Back then, paper envelopes were used to send monetary gifts and to separate money. The original method has been around for ages, in China since 200 B.C to be exact. It describes that seeing and feeling the money and being physically present at the time of purchase can intensify the feeling of losing the money and therefore prevent you from overspending.Ī creative way to keep us from going over our budget, is the cash envelope method. The oldest theory called “Pain of Paying,” introduced by Ofer Zellermayer. Research has found that compared to cash, using money in a virtual way (i.e., credit cards) can lead to an increase spending, and more debt. However, price increases in housing of 30%, gas at 40% and food at 10% due in part to high inflation rates are forcing us to tighten our belts and find creative ways to make things affordable. It seems counterintuitive to use cash when we are living in a world of virtual currency, automatic online payments and “paying without payment” transactions such as face recognition and one-click.