Financial management is not an art, but a science. It requires skill, determination and discipline, not passion. I don’t know if it is for better or worse. Yet, you as well as anyone else on our planet have the same chances of mastering financial management though application of several simple, yet good tricks. I am willing to teach you about one of the best methodologies right now. We will discuss the so called 4 envelopes system.
Do note that it is not an app-based system like the one where you can manage personal finance on effectify.com, but is as good for those of us who are not fans of gadgets, banks and credit cards.
What’s so good about the envelopes?
Before I get clear on explaining the system as a whole, I would love to highlight some of its major benefits. Here are three of them, just to name a few:
- The “envelope system” is simple in implementation. No additional preparations required. You don’t have to major in finances to get how it works and why it works.
- The system is fast and rather actionable. You can start working it into your life straight after reading this post and see immediate benefits.
- It works. Plain and simple – the system I am about to tell you about gets the job done – your personal finances are managed perfectly.
How do the envelopes work?
It’s time to get to the juicer part and describe how the 4 Envelopes system works. Here’s what you need to know: buy 4 envelopes. They can be whatever the size and shape you can come up with. And put your money in them.
Don’t worry! The system is a bit more complex than this.
The system is all about careful evaluation. As soon as you get your paycheck you should save and store 10%. Not more, nor less. Those are your so called “black day” money you can’t use right now or in the nearest future.
Count what you have left and consider what you are going to spend the money on. There are necessary expanses like bills, credit card debt, or rent. Gather enough money and either pay up straight away or store that cash separately for when the time’s right.
Then consider your secondary necessities like a new pair of shoes you “have” to get because your old ones are already worn out, etc.
Whatever’s left is divided by four and goes into 4 envelopes. Each represents a weak of a month until your next pay check. That’s it. You now have a limit. Feel free to do whatever you will with it – that money is expandable.
Yeah, the system may seem like the simplest solution, but it is proven to work. The 10% of money you save up each month tend to grow into a colossal sum over time. With a great bank you will afford your own home in a heartbeat.