The Good Old Envelope System
The story of MyMvelope.com
In years gone by, a common way of saving for specific goals was to put cash into marked envelopes each payday and keep them in a safe space. As a young child, I watched my grandparents divide their wages into envelopes marked 'Petrol', 'Grocery', 'Christmas' and so on. In addition, all spare change was dropped into a gallon bottle. When the bottle was full, the money was counted out and used for a family vacation.
As an adult I am now well aware that my grandparents earnings were very modest. In fact, at times they were genuienly poor due mostly to my grandfathers bad health that ran up medical costs and limitted his ability to work. However, Christmas was always a big occasion at Gran and Gramps house. We always had a full feast and were blessed with wonderful gifts. We always ate well too and, looking back, I believe that was because when unbeatable deals were to be found, especially at the butchery, there was always some cash in the 'Grocery' envelope to spend. Even though they were never wealthy, they saved and spent their money wisely and their envelopes kept them on track.
But this is the 21st century! Its a cashless, electronic society!
Yes, times have changed and the envelope system has become somewhat redundant in our now electronic society. While many still promote the 'Cash is King' idea, the reality is that with high crime rates it is simply not longer wise to keep large amounts of cash stashed inside our homes. We are also well aware of the wonderful things called 'Interest' now and few skip out on the opportunity to make their money work a little harder for them!
Still a good idea? But how?
The practice of setting portions of money aside in specific categories to save for specific goals is still a good one. Without setting those funds aside in the right proportions, I found the family budget very hard to manage and always had 'too much month left at the end of the money'. It was also infuriating to come across really good deals, like early bird theatre booking deals, 'pay for one, another goes free' cruise holidays or drastically reduced flight prices that we could have used to visit family across the country. But, without using a credit card, there was never a way to fund and pay for these deals. Christmas was stressful every single year because January became a 'beans and rice' month because we were broke. If the children needed new shoes or to go on a trip, finding the money was always stressful. Trying to run our budget out of one account simply wasn't working.
So start a savings account!
We tried setting aside a portion of money into a savings account each month. However, that tended to get used up on things like clothing and holidays very quickly. I'm not a spendthrift by any means. On the contrary, I take pride in being a top notch frugalist. However, our goals and categories were not defined and so that couldn't be managed. Remember that old saying:
Failing to Plan is Planning to Fail!
It sure proved to be true!
So is there a way it can work?
YES! Here's how: We operate 3 accounts now. After giving away 10%, our income is divided into 3 portions and saved in separate accounts.
Long Term Savings
1 account is for long term saving where we save 20% of income to help in the case of a job loss or sudden financial disaster. It is recommended that one has the equivilant of 6 months earnings in this account. After setting aside this saving, we pay the regular, set monthly bills - mortgage, phone, insurance, medical insurance, etc.
Working Account for Day to Day Expenses
The remainder of our income is spilt between 2 categories: day-to-day expenses (which I call my working account) and our savings account.
Day to day expenses include basics like food and fuel. These account for about 20% of our total income. It helped to track our spending over a few months to realistically determine how much we actually spend in these areas. I was surprised to discover I spent more than I thought on food but less than I thought on fuel. Knowing how much you spend in these areas is a key to financial success. Without knowing, you can't allocate the correct amount of funds into your working account. You'll either have too much and waste it or you'll have too little and get very frustrated! I use a debit card and online banking to use and manage this account.
The remainder of our earnings gets deposited into our savings account (for us its roughly 20% of total income). This is for various expenses that are not monthly or regular expenses but need to be planned for. These include vehicle maintenance and new tires, clothing, medical bills for the animals, home improvement and maintenence, insurance deductables, entertainment and so on. We also have specific goals to save towards, such as a vacation, new carpets and a new car and in addition we save for birthdays and Christmas as well.
We realistically worked out how much is needed in each category over a 12 month period and compared that figure with how much we have available to save. For example, we wanted far more in the clothing and Christmas portions than we could afford. If we proportioned the amount we originally wanted, other areas would suffer by getting less. On the other hand, the cost of a vehicle service is a set rate so we couldn't reduce that portion even if we wanted to. In other words, we had to allocate monthly funds into the most necessary categories first, and what was left over was then allocated into more flexible areas, such as clothing and Christmas.
The process may sound complicated by it really isn't. Using bank statements and receipts, my husband and I worked out our allocations within a few hours. Once we had determined how much was needed and could be afforded in each area over the period of a year, we divided that by 12 to show much much we needed to allocate each month.
Managing our Savings Account
I had to have a system to show how the funds are split into various categories even though the money is all kept in one account. Basically, I'd keep a long list of all the categories and along side each is a balance. As I buy things that require these funds, I use my working account to pay for them and transfer funds from the savings account back into my working account, usually twice a month. To track how much I spend from each area, I deduct the amount spent from each category with a small reference to remind me of how the money was spent. For example, alongside a deduction of 200 in my Entertainment category I typed "Theatre Tickets". Balances in each category are adjusted as I make deductions. I keep all my receipts and use these to make the appropriate category entiries and money transfers. I usally only need to do this twice a month but if I spend a lot, I have to update my entries and transfer funds more regularly to avoid running out of funds in my working account.
Making do in the absence of what we really needed
We tried various ways of managing these categories but nothing worked perfectly. I sometimes felt frustrated and really didn't want to spend lots of my time managing my finances. I knew that good financial management is important and that we were onto something that, in theory, worked. But we needed to find something that worked well in practice too. It had to be easy, quick and accessable. My husband decided he'd help me and together we started trying out various things. Nothing we came across suited us perfectly - it was either too expensive or it didn't do what we actually needed it to do. Most of what we found was too complicated. We didn't want or need a full accounting or financial management program. And we didn't want to break the budget by spending so much on a budgetting system that wasn't even what we needed! The point was to SAVE money not spend so much more! I was ready to give up and just keep things the way they were even though it wasn't perfect but Andrew said he'd try a few ideas and see what he could come up with by building a system himself. He came up with MyMvelope.com, I thank him EVERY DAY!
Simple, Quick AND Easy!
It is now so, SO simple! At the beginning of each month I simply open up MyMvelope.com and allocate my funds across the various envelopes (electronic envelopes, or categories). When I spend money, I simply go back to MyMvelope.com, type in what I spent from the specific envelope and save it. It is so easy! And even better, because its an online system I can access it from anywhere! So when I was visiting family and really wanted to take them out for a nice dinner, I quickly logged on, checked how much was in our Entertainment Envelope and I knew exactly how much I could spend! It works so well!
With Christmas coming up soon, I'm not worried about how we'll afford to do all the things we like to do or how much we'll spend on gifts. Not only is there money set aside in our Christmas Envelope, but by allocating funds into the envelope each month there has always been money available to buy things when I have come across unbeatable deals throughout the year!
I recently scraped the side of our car. Handling the repair was a breeze because my Deductable Envelope was fully funded. For the first time I didn't have to worry about where I would find the funds - they were there already!
And watching our holiday fund grow has been WONDERFUL! Thanks to managing our money properly by using MyMvelope.com, we are finding extra funds to stash away for that special holiday we've been dreaming of. It is so exciting!
It works for us, how about you?
If you're interested in a system that really helps you to manage your spending and savings, MyMvelope.com is for you! We'll help you along the way too. A simple video shows you exactly how to get MyMvelope.com working for you and explains how to manage it. We'll share suggestions and experiences with you through our blog each week as well. Using MyMvelope.com, I have found that managing our savings and spending is not just simple, quick AND easy, it can actually be fun! The feeling of being in full control of your money and watching it grow as you save for specific targets is really great!
Give it a go and let us know what you think!