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The envelope method, often referred to as “cash envelope.”
The envelope system, which physically divides a person’s monthly income into many spending buckets, is one approach to budgeting. It’s also known as cash stuffing on the TikTok video-sharing app.
The Cash envelope system, often referred to as the envelope technique of budgeting, has been around for a while, but it may have recently gained popularity due to its exposure on the video-sharing website TikTok, which has received a lot of media attention.
The idea is basic: Gather many envelopes and label them with distinct categories of expenses (e.g., “groceries,” “rent,” and “student loans”). Then, split the desired amount of money among the envelopes.
Monthly use of the envelope method has historically included real currency and the corresponding envelopes. In recent years, more and more people have begun to use digital tools such as spreadsheets and applications like Mvelopes and Goodbudget.
The envelope’s mechanism
Sort all of the different costs you’ve incurred into the appropriate categories first. You might choose to be more general or more particular in this situation. Aside from a general “going out” envelope, you may have other ones labelled “movies,” “restaurants,” or “drinks.”
Subsequently, mark every envelope and place the specified amount of money inside the relevant envelope. This is the process’s “cash enveloping” phase.
Although a 50/30/20 budget is a wonderful place to start, you may spend your money anyway you like. This implies that, after taxes, you spend half of your income on necessities like food and shelter, another thirty percent on leisure activities like fancy eating out and vacation, and at least twenty percent on debt repayment and savings.
Only cash that is in the appropriate envelope should be utilised to make payments. For example, to pay for a $5 latte at Starbucks, you would take $5 out of an envelope labelled “coffee” before you could purchase the latte.
It will be possible for you to refill your envelopes once a month or whenever you are paid, whichever comes first.
The advantages are important
Envelope method: By avoiding debit or credit cards, one may prevent debt and overdraft fees as well as other bad financial outcomes. Breaking apart your money physically not only prevents you from overspending on impulsive purchases but also helps you realise how much money you really have to spend on a certain item.
Users who are limited to cash purchases are more emotionally invested in their money. When you just deal in cash, it’s simpler to keep an eye on your spending since the money is more palpable. In addition, a number of studies have shown that consumers who pay with cash ultimately spend less than those who use credit cards.