Have you tried “Envelope Budgeting”!

Hi!

How are you?

Summers are here! What better season and reason to go on a holiday with family & friends.

I have planned my trip to London…how about you?

I have been planning this trip from a long time and had also set aside a budget. This time I used a simple technique…called the “Envelope budget” and trust me it helped me keep a tidy budget…

Here is how you can go about with “Envelope Budget”

First rule

Differentiate between your “wants” and “needs”.

This has to be sorted in your head. This is the ground work for a strong budget.

Second rule

Get organised. Break down your expenses into:

Fixed expenses: Rent, Loan payments etc.

Flexible expenses: Groceries, Entertainment etc.

Periodic expenses: Savings, Vacations etc.

Third rule

Gather envelopes and label them.

Label the envelopes with the expense head and the allocated amount. Put the cash in it and use only to the extent of cash available in the envelope.  Example: Rent ₹. 15,000, Groceries ₹. 6,000 etc.

Fourth rule

Stop spending once the envelope is empty

Do not cheat by adjusting cash from some other envelope. You would be breaking the principle of the “Envelope Budget” concept.

Fifth rule

Monitor and Modify

At the month end, check if any envelope has excess money left over. If that is the case then it’s time to rethink and allocate realistic cash for the next month.

Deposit the surplus unused money into your bank account. You could also let the balance accumulate or allocate less cash in that envelope for next month.

What ever you decide to do…keep it simple and stick to your budget!

This is tried and tested by me and it works. The results can be amazing provided you follow the rules! So go and get yourself a dozen of envelopes

All the best…and plan that holiday…soon!

See you on Tuesday!

Satish

About Author

Satish Mehta

Satish Mehta is a mortgage finance and credit information veteran with global and domestic experience of over 40 years. He runs a boutique consulting firm - Athena Advisors. He is a consultant to the World Bank Group and a Professor of Practice at the Ahmedabad University.