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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