Debt is surprisingly common among working Americans, with reports indicating that 8 in every 10 Americans have still not settled past charges. With student loans and credit card debt plaguing the wallets of so many, living beyond one’s financial means has become a normalized aspect of adulthood. And as emergencies occur and expenses pile up, it can be difficult to catch a break from the gravity of impending debts.
But how is it possible to end this vicious cycle of taking on a growing number of loans? Budgeting is a crucial part of smart financial management. If you’re still paying off debt, try out this budgeting trick to help you best utilize every dollar you earn.
The Envelope System
It’s much easier to keep track of how much money you have when you can physically hold it. Cash money provides an effective spending visual, as you can tangibly see it come in and out of your wallet. The envelope system is comprised of a set of individually labeled envelopes that are specifically reserved for different categories of spending. As you make deposits and withdraw for purchases, it’s much easier to gauge how much money you have at your disposal.
How To Use It
The envelope system encourages its users to cash in their paychecks, and designate that sum of earnings into manageable subcategories of expenses. This can include groceries, gas, social outings, and emergency funds. After you place your cash into an envelope labeled for its unique purpose, it cannot be transferred to other envelopes. This strict separation of funds needs to be upheld in order for the envelope system to be effective.
By adhering to these predetermined categories of spending, it is then much easier to have the financial flexibility to set aside money. Without intentional planning, debts can be prolonged and accrue devastating amounts of interest. The envelope system inspires its users to live more frugally and resourcefully, making the most of the budget that you have and giving you the capability to pay off past debts.