The Envelope System Might Save You Money
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The Envelope System Might Save You Money

Posted on Monday, May 1st, 2017 at 7:00 am
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Dollars in envelopeThere is tons of advice online about how to save money. Often, it calls for cutting back on your expenses. What if you’ve already done that and still aren’t making ends meet? Perhaps the “Envelope System” might help you save money.

How to Save Money with the Envelope System

Erin Lowry wrote a book called “Broke Millennial”. In it, she explains how she managed to save money while working as a page on the David Letterman Show and living in New York City. Her money saving method is called “The Envelope System.”

She started by getting some regular paper envelopes. Each envelope was labeled with a category. In her case, the envelopes were labeled: rent, money for roommate who paid the utilities, savings, and fun fund. She put cash into those four envelopes every time she got paid. She did this instead of putting the money into a checking account or into a savings account.

In addition to working as a page, Erin Lowry also got a job as a barista at Starbucks. She also got paid for babysitting. The people she babysat for paid her in cash. Her work as a barista often resulted in cash tips. She put 50 percent of the money into the rent envelope, 25 percent into the money for roommate envelope, and 25 percent into the savings envelope. Extra cash would go into the fun fund.

One advantage to The Envelope System is that it gives you a tangible, visual, way to understand exactly how much money you have. If you discover, halfway through the month, that the rent envelope is low – you have the chance to make some changes. You can try and get more work, or pull from the fun fund.

The Envelope System makes it harder for people to unwittingly spend more money than they actually have. People who buy things with credit cards tend to spend more than they would if they had to pay cash. There is something about holding actual dollars in your hand that makes people more careful about where those dollars go.

There are some down sides to The Envelope System. It won’t be as easy to do for people who are paid by direct deposit, or by check, instead of with cash. Most people have bills that require a check, debit card, or electronic payment – and cash will not do.

Some people may feel uneasy about not having a checking account. Some savings accounts can accrue interest (something The Envelope System cannot offer). That being said, if you are a “Broke Millennial” like Erin Lowry was, The Envelope System might be exactly what you need.

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Good Tip: Saving money is important – especially if you have a lot of expenses like bills to pay, loans to pay off, and all the other things that drain your bank account. Figuring out a way to save money can feel tedious to some, and like a punishment to others. U.S. News suggests that you try one of these money saving challenges. The “No Eating Out for a Month” Challenge This one is self-explanatory. The goal is to avoid eating out for an entire month. This might be super easy for people who enjoy making meals at home. People who really enjoy dining out, or ordering food to be sent to their home, may struggle with this one. It’s worth a try because spending money on take-out is more expensive than buying groceries. The Pantry Challenge This one is a variation of the “No Eating Out for a Month” challenge. The goal is to use up all of your groceries before you buy more. It forces you to try and remember why you bought a food or beverage that you don’t know what to do with, and gives you the opportunity to find a way to use it. The one exemption to this challenge is the foods that have expired. Don’t eat them! Throw them in the trash. The “No Spend” Challenge Make a goal to avoid spending money during an entire weekend. The only exemption in this challenge is that you are allowed to pay bills. This challenge is interesting because it requires creativity. You must be creative and find workarounds for problems that you would typically solve by spending money. You may have a different outlook on spending after finishing this challenge.