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The Old-Fashioned Way To Manage Spending And Climb Out Of Debt
Sometimes the old-fashioned methods just work.
In a recent LA Times video, David Colker explains the Depression-era practice of categorizing expenses by using envelopes and setting spending limits for each one, also known as envelope budgeting.
After labeling each envelope with its category and monthly budget amount, you stuff it with the allotted cash.
Typically this is done after payday, or at the start of the month when it's easier to see what you're working with.
When you shop, you take money from the envelope, but the trick is to not borrow from other envelopes or keep spending (aka charging on credit) once all the money inside is gone.
As with all budgeting methods, envelope budgeting has its pros and cons.
Unlike online budgeting sites like Mint.com, which can get confusing with all their colorful graphs and charts, there's no need to vigilantly update your budget—everything's already set at the start of the month (or the current pay period). And you can easily see where you stand just by opening the envelope.
And as a recent study found, earmarking savings in an envelope labeled with a picture of a couple's children nearly doubled the savings rate of very low-income parents.
Of course, for tech-savvy consumers, the method can be too archaic and the envelopes can easily be misplaced, or worse, stolen.
Personally, I'm not averse to envelope budgeting. I've tried it before, and the visual reminder of how much I'd spend in a week just on dining out or groceries was enough to get me in line. However, living with roommates has made all this envelope stashing unfeasible—what if someone tapped into my grocery stash?
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