How does it work?
Depending on the needs of your family, you will break your expenses into different categories and have an envelope prepared for each so that when payday comes, you will place the money on envelopes as budgeted.
The rule is:
You can only spend the money in those envelopes and if it runs out, then you have to wait for your next paycheck allocation. You ate also not allowed to move the money from one envelope to the other or you will be defeating its ultimate purpose which is control over cash spending.
Now, what are the pros of using the cash envelope system?
I mentioned in my previous post how I encountered an article from an old magazine while cleaning my room. Well I'm an accountant. It's normal for me to compute automatically when I see numbers. That's what triggered me to get a reality check on my financial status. I hope this post would do the same to you.
On the same night, I sat in my room and stared at my bank book and mull over my finances and spending habits. Here's how you can too.
1. List all source of income and how much you earn from it.
Right now, I have a single source and that's my full time job which basically earns me the same every payday. Now if you're working several part time jobs that have varying income, get the average and don't over estimate.
I suggest getting the middle of your lowest income and most consintent highest income from that part time job.
Lifestyle inflation happens when your increase in income is followed by increase in expenses. Others write articles on how to avoid it but in my opinion, it's inevitable. Changes in work and family conditions will cause it to inflate in a way, like buying a family car or moving to a bigger house. Besides don't we all work hard to elevate our standard of living?
After college, I landed my first job as a purchasing staff in a manufacturing company and believe it or not, I only earn between P6,000 - P10,000 a month including overtime. Now I'm earning roughly three times more than that but I have no investment and P20,000 behind my targeted personal savings plus a personal loan.
So where does my money go? How was I able to manage living with only that much in the past?
I chelked my credit card billings, some receipts and here's what I found.