The Envelope Budgeting System (EBS) is an old method for understanding your spending habits. This is a very useful technique that many people still use as it helps them to understand how much they spend unnecessarily. They can then accordingly control the expenses and have a better monthly budget for their families. Here is how you can apply it to understand your finances.
To start the EBS, you need to categorize your expenses and decide which ones you want to add to the EBS. Some flexible expenses, which can be categorized for this, can be glossaries, eating out, clothing, entertainment and traveling. Any expenses, which are not fixed for bills, can be considered for Envelope Budgeting System.
Withdrawing the money
Once you are done categorizing the flexible expenses, add them up. Once you get the total sum required, withdraw the total amount from your bank through a cheque or an ATM transaction.
Once you have the money, divide it according to the categories and put in envelops. Write down the name and amount of the categories on the correct envelop. That way, once you spend money from them, you will be able to keep track of how much you have spent for each category by counting it separately. You can have some extra money with yourself for emergencies.
You have to maintain a spending system with the Envelope Budgeting System. When you are going out shopping or to a restaurant, take only the envelope that is assigned for these expense heads. Also, do not forget the travel expense envelope. Do not carry the envelops that you do not require as that will make you feel tempted to use the money from other envelopes too.
Know when to stop
If you want this system to work then you have to stop spending for a category when its envelope is empty. That will teach you to be in a system. Discipline is the key to follow this system successfully.