How To Save Money Easily (Envelope Method)


What if I told you that a small change in how you manage your money could leave you in a better financial position than 99% of people you know? Well in this article, I am going to share with you how to save money easily using the envelope method!


Now, I said in the intro of this article that I wanted to share with you how you can save money easily. I said this because for many people, saving ranges from being somewhat of a challenge to being downright impossible. But why is that? Isn’t saving money just ensuring that you spend less than you make? In principle is it but the same argument can be made for losing weight. Sure, everyone knows you must eat less calories than you burn to lose weight yet over 40% of Americans are obese. In short, it’s one thing to know what to do but it’s another to actually execute.


So what’s holding people back from making progress in their money saving efforts? If I were to give you my best guess, I’d say that people’s inability to save boils down to three main factors. The first, is that they are in a financial position where they simply aren’t making enough money to cover their monthly expenses. The sad reality is that many people can only manage to earn minimum wage and even living with just the bare necessities can be more of an expense than they can afford.


Next, there are those that have no idea how to manage their money which causes them to overspend. They may earn a high or a low income but regardless of how much money is coming in every month, they spend not accounting for whether their expenditures exceed their income. These type of people are usually those who never had any financial education on how to budget and track their spending which has proven to be the reason behind their financial struggles.


Finally, there are the conscious over-spenders. Yes, while it seems asinine that someone would willingly overspend, a ton of people do it every day. The real question in this case is why? Why would you knowingly put yourself in a bad financial position? People in this position often spend to impress others or to use their spending as a way to cope with their emotions and both circumstances are a death-sentence for your money.


So if you identify with any of these situations or just want to try on a new saving technique then I suggest you give the envelope method a try. The envelope system is a way to track exactly how much money you have in each budget category for the month by keeping your cash tucked away in envelopes. Then, at the end of the month, you can see how much cash is left by taking a quick peek in your envelope. Sounds easy enough right?


Before I get into the four steps involved with the envelope method, let’s talk about why this method is so effective. In short, this method involves three important aspects, budgeting, tracking and restriction. While you may have just cringed at the thought of budgeting, this aspect of the method is key to saving more money than you ever have before. You see, most people find themselves overspending because they have no real plan for how they will shell out their money. They simply see things they want, tap their credit card and go on about their lives. But with the budgeting phase of the envelope method, you will have a plan in hand when starting your month.


Then there’s tracking. As I like to say, “if you ain’t tracking, you ain’t stacking”. As you begin to spend the money you’ve allocated to each envelope, you will naturally start to track how fast your money is being spent.


Next, there’s restriction. As you know with credit cards, the ability to spend is almost endless however with the envelope method, once the cash in your envelope runs out, that’s it for the month. Therefore, by restricted your spending, you will be sure to start to see your savings grow.


The final reason why the envelope method is one that you should employ is because it incorporates the tactile nature of money. For most people these days, the amount of money they earn and save every month is simply a number they see on a computer screen and because of this, tend to undervalue it. Over time, I too started to become detached from my money and it wasn’t until I started collecting rent from my tenant that I was reconnected with the value of money. Every month, I would collect a handful of cash and count it out and simply by having the money in my hands I instantly attributed more value to it. This is what will happen when you use the envelope method so with that being said, let’s go over the four steps that will have you saving more money than ever before!


Step #1: Create budget categories

After getting your hands on some envelopes, what you will want to do is identify all the categories of items you buy on a monthly basis and this is especially important for those cost categories you always seem to overspend on. On each of the envelopes, write down the name of the category. Some of the most common groups include groceries, gas, rent, clothes and entertainment. In order to determine which categories you’ll need; I’ve found it helpful to review my prior months credit card statement and group common purchases for my envelopes.


Step #2: Determine your budget amounts

The first step in assigning your budget amounts is to identify how much you are making after-tax on a monthly basis. This number is often easiest found on your paystub or as a deposit in your checking account and if you get paid twice a month then multiply this amount by two. Once you have your monthly after-tax income figure, the next step is to determine your savings target. For instance, maybe your annual goal is to save $5,000 this year, well on a monthly basis, you would need to stash away around $420. Once you know how much you want to save, you can determine how much you have to allocate to your envelopes. For example, if you make $3,000 after tax and want to save $400 then that means you can distribute $2,600 between your budget categories. But how much should you put in each envelope? This is where you will go back to your credit card statements and calculate how much money you are spending on each budget category on a monthly basis.


Step #3: Fill your cash envelopes

At this point, you know exactly how much you make after-tax every month, how much you want to save and how much cash you will put in each your envelopes. The next step is to gather your cash. Head down to your bank and withdraw the amount you’ve designated towards all of your envelopes. At this point, you’re either going to be feeling like a rich rapper walking around with thousands of dollars in their pocket or the next person to be robbed in your city. Who said saving money can’t be exciting right? Once you’ve secured your cash, fill each one of your envelopes with the amount you designated to it in step #2.


Step #4: Spend according to your envelopes

While the last few steps have set you up for saving success, step #4 is the most critical in your efforts to save money fast! The key to the envelope method is to spend only what you have allocated to each budget category, meaning that once your cash runs out, your spending ceases. Where people go wrong is that they supplement their spending by charging their credit card which is how they got into money troubles in the first place. This means that when you go out grocery shopping with your envelope, if your items amount more money to more than your envelope has, you must make decisions of which items must go back on the shelf.


What you’ll start to notice is after implementing this money saving strategy is that seeing your envelopes become thinner and thinner as you make your purchases will make you more conscious of how you spend your money. You may even find yourself not spending all of your allotted cash on more discretionary categories like clothes and entertainment, so if this happens, what should you do? My advice is to put any extra cash into your savings, which will allow you to reach your saving goals faster and have that piggy bank busting at the seams!


Now, if you’ve made it this far, you probably have one burning question you want answered and that’s “how does this work if I shop online?”. Obviously, the idea around using the envelope method is to be buying the items you need in person so that you can pay cash but don’t worry because this method can still be applied when shopping online.


The next time you buy something online, here’s what you need to do. First, identify which budget category the item you’re buying belongs to. Then, after completing the purchase, take the money out of that envelope and put it into a new envelope designated as the “online purchases” envelope. Every time you make an online purchase you should be repeating this process. By doing this, you will see those other budget envelopes dwindle down which will prompt you to stop spending on those things over the course of the month.


At the end of the month, if you’ve been doing online shopping, you should find yourself with an “online purchases” envelope with a wad of cash in it. Next time you go to the bank to take out your monthly cash allowance, what you’re going to do is deposit the money from that online purchases envelope back into your account. This ensures that when your credit card company goes to pull your payment that the money will be there allowing you to avoid any interest changes which as we know will only hinder your ability to save money! Therefore, whether you’re buying in-person or online, the envelope method can work for you!