Kill Your Debt

Home truths about debt and managing it

There are several complicated methods of keeping your casual spending in check, but by far the simplest is using the common old envelope.

This is more appropriate for people who get paid fortnightly or monthly than those who are paid weekly. You will see why in a moment. Also, this method lends itself very well to implementing the Emergency Fund discipline I wrote here.

Firstly, a quick definition of the problem. Eftpos, debit and credit cards. They are the baine of the novice budgeter, and can even get experienced budgeters into trouble. It is simply too easy to lose track of how much you are spending on “casual” expenses. A coffee there, a sandwhich there. It adds up quickly, and by the end of your pay period you will usually run out.

Any business will tell you that cahflow is king, and even in rought times a business with good cashflow is likely to weather the storms.

It is no different with personal cashflow. If you are paid once a month, you need either three or four envelops. Fortnighly requires just one envelop.

On your payday, you go down to your bank and take our your weekly “casual” spending money.  Although this will be covered in another article, it is essential for things that you need/want like coffees, a movie ticket or the like.  It’s not the big regular stuff, its the minor things that you end up spending money on each week without realizing.

If you need to allow for four weeks, you take four weeks worth out.  When you get home, you put each weeks into a seperate envelop.  Stick them in a draw, don’t touch them until the start of the following week.  The balance of money for the current week you stick in your wallet/purse.  That’s all you have for the week.

What this does is make you think every time you spend money, you see that your money is “disappearing”. Discretionary spending is likely to be less frivolous if you see the impact there and then rather than on your bank statement.  It gives you an obvious target for limiting your spending.

Another thing this simple method does is empower you. I remember teaching this method to someone close to me, and after a few months they felt incredible control over there spending. They really felt a lot less stressed over their money, and actually found they had more money to spend than they used to.

Now, let’s say you are going out in the third week somewhere special, and your weekly allowance does not cover it. Simple. You can put ten or twenty dollars from each of the other weeks into the third weeks envelop. You honestly won’t miss it.  You now have power over your money instead of the other way around.

Copyright © 2009 Karl Rohde