It’s Sunday and I’m counting down the hours until I can pick up my check tomorrow and have money again. I planned poorly for paying my dental bill upfront and so this week has been much harder then it needed to be. I knew better too. Do you also sometimes have trouble covering bill, scrambling at the last minute to come up with the money? Living on oatmeal and Ramen Noodles for a week isn’t much fun. And yet we do this to ourselves over and over. 

At least we aren’t alone. It is estimated that 40% of the population lives paycheck to paycheckwith very little, if anything at all, leftover after covering basic expenses. With little in savings and credit cards an all too convenient temptation to cover the basics, getting ourselves in deeper debt it may be time to try and change our ways a little bit. There is hope. It’s something called ‘the envelope method’ and I have personal experience that it does work. When I use it that is. I don’t know where it originated, or who used it first, but it sure can make life easier to manage for those us who aren’t in the Forbes Four Hundred. Although this method may not work for some, it does seem to work for most people that stick to it.

Its basically a cash payment system an envelope is used as the payee. Several envelopes. One for each basic need and anything you might need to save money for that isn’t an ongoing expense, for instance buying a new appliance or saving up for a vacation.

This is how it works. Look at how much each of your bills is each month and then divide that by how many paychecks you get each month, obviously either two or four. One each envelope write the bill to be paid, how much total you need to pay it and how much you need to pay from each paycheck to total that amount. This will be easier to do with bills that are the same amount every month. With bills that are variable each month it might be a good idea to look back at the last six months or so of that bill and try and get an average. Using that average you might overpay one month and under pay the next but even out in the end. Or overestimate, using your highest bill and then you could have a little extra money for the next month. Better yet, at the end of the month, any excess money from bills you overestimated can go into an envelope for something you don’t buy all that often like clothes or Christmas or birthday presents. I recently saved up for my teeth. Knowing my target date on the due date of payment (time services are rendered) I was able to see how much I need to save each week in order to have it all without having to scramble at the last minute.

This is how a few example bills might look. If you know you pay $70 for your phone each month and that you are going to spend $200 on school clothes four months from now, then you would put $70 in an envelope marked phone bill every two weeks ($17.50 every week). Then you would pay the ‘school clothes’ envelope $25 every two weeks ($12.50 for weekly). At the end of the month, or beginning of the next you will already have the money for those bills ready to go. But don’t forget that while you don’t have to scramble for those bills, you do need to keep adding to the envelope for the next month. When it’s time to buy school clothes you wont have to take it out of your check and wonder where you will get the money to eat that week, its already saved up.

Sounds easy and stress free, right? Here’s the hard part, because there’s always a hard part, DON’T TOUCHE THE MONEY IN THE ENVELOPES ONCE ITS IN THERE. And be sure to put it in there before you spend a single penny of it. The only reason to take out of the envelopes is for paying the stated bill you’ve written on the outside of that envelope. Once you have paid your envelope for that paycheck period put it somewhere you wont see it everyday.

Now I know that this is what a bank is for. But for many people, even with a bank account, they seem to be scrambling to pay whole bills out of each paycheck. That is a very stressful way to live. And usually leaves you broke for at least a couple of days before the next paycheck. I wont promise you that with this method you wont also be broke for a few days but having the money saved for each bill already means you wont have so much to worry about and will have more leftover from each paycheck because you won’t be taking such big chunks out. it’s the same amount of money, yes, but rearranged in how its spent can feel like more and leave you less stressed and maybe even with the ability to save a little each month.

I personally find this method the most helpful for saving up for things I don’t buy or pay for often and cost more then I can afford to pay at one time, like my dental bill. Not touching the money once it’s in the envelope is really the key to this method working well for you. Its all too easy to tell yourself that you’ll just put in more the next week to cover what you took out this week. But something always makes it hard to put it back once its spent elsewhere. Sticking to paying the envelope every week or two is also very important. My mistake with my teeth was that I saved up half and paid the other half in one lump sum, believing I’d be okay because I had some extra money coming. Well that extra money didn’t come on time, and now I’m broke. I counted on something that wasn’t a sure thing, so now I’m broke and eating oatmeal and noodle until Monday comes. These things happen. Nothing is foolproof, and even knowing that we shouldn’t count on that extra bonus money to come through to pay for our basic needs like food or rent doesn’t always stop us. The good news is that if we stick to the method, get back on the horse, we can catch up fairly painlessly and hopefully quickly. I only miscalculated one check and am only down on food and toiletries, because I did have the money to pay all the other bills on time. And that’s really the important thing. So if you find yourself not only having to eat the same basic meals at the end of the month but also worried about pay the rent next week and keeping the electric on, you might give this a try. That first month will be tight, but the next should be less stressful. 

You can’t really put a price on peace of mind. And that is the secret of the envelopes.

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