How to Save 5000 in a Year using Envelopes
Are you someone who has a hard time saving money? Does the idea of saving a significant amount of money seem impossible? We’ll show you an easy way to save 5000 in a year just using envelopes! Sound too good to be true? Well, it still requires saving, but this technique takes some of the daunting pressure off a large number.
How does it work?
This easy technique has a few simple components. You only need two things:
- Cash
- Envelopes
That’s it! The idea is you get your income in cash (cash that paycheck at the bank) and you physically stuff the envelopes with cash.
You get multiple envelopes – one for each budget category, one of which is savings. Then once you have your disposable income in cash, you deposit an amount into each envelope based on how much you need to budget for that category. If you need help on how to budget, see our sections on budgeting here.
Here’s an example of what this might look like:
I have an issue spending too much on food and eating out in a month. In a month, I know I spend about $200 on groceries and $100 on eating out in a month and I want to save $5000 this year. I would take one envelope and write “Groceries” on the front, one with “Eating Out” and one with “Save”. When I get my paycheck, I would go to the bank and put $200 in the groceries envelope, $100 in the Eating out Envelope and $420 in the Save envelope. This is the only money I’m allowed to spend on these things. This ensures I can’t overspend! I can only spend what is in the envelope.
If you budget $100 a week or a little over $400 a month you will easily save 5000 in a year with this technique!
Why it works
This technique works because it forces you to physically move the money into an individual envelope. So that means if you want to overspend, you have to move cash from another envelope. This technique (or challenge) is best for people who struggle with feeling like their money is “monopoly money” when it’s in the bank and they can’t hold it in their hands.
This is a great strategy for those who struggle with the tangibility of money and budgeting. Additionally, you don’t have to update any spreadsheets or log into any apps. For this reason, it’s often attractive to older people or those who struggle to keep up with apps.
Challenges
As you can probably expect, there are a few challenges with this technique. The biggest one is that you need to get your disposable income in cash. This requires you to go to the bank and cash a check or pull out money.
You also lose out on some of the benefits of paying with a credit card or enrolling in digital programs (credit card rewards for example).
This article talks more about the challenges with the envelope technique.
We have some other articles about budgeting if you are interested, such as how to budget during unemployment and the secret weapon for creating a budget.
Let us know if this technique helped you save 5000 in a year!
Note: I am not certified to give out personal finance advice, everything here is just my opinion.
Also published on Medium.