Do you know the envelope method? This way of keeping an overview of your own budget is currently in vogue. But how does it work and can you save money with it?
Even if some prices are currently falling again, many people in Germany still have to watch their money. Getting – and keeping – an overview of your finances is not easy for everyone. This is probably one of the reasons why people like to try out different saving methods. This also includes those that our grandparents and parents used regularly, such as the household book. Or currently the envelope method, better known on the Internet as cash stuffing.
Saving money with the envelope method: how it works
“With a card, please”, this sentence is now more than usual at cash desks, in restaurants or clothing stores. Especially in the last three years, during the corona pandemic and the subsequent restrictions, contactless payment has become increasingly popular. The big disadvantage here: When paying with a card, most people have no idea how much money they spend each month. The pay later function of some providers can also become a problem.
This is very different from withdrawing a weekly or even monthly budget from an ATM in cash and then paying for everything in cash with notes and coins. And that’s basically what the envelope method is all about. It should help to learn to be more conscious about money again. To do this, you divide your budget into different categories, write them on envelopes and then only spend the money in them.
Money in envelopes: what categories are there?
Anything that you spend on top of the fixed costs can count as a budget. You know best what money is spent on. Here are a few categories for inspiration:
- Eating out (on the go, restaurants…)
- Culture (theatre, cinema, museums…)
- Car (repair, refueling…)
- Public transport, train
- Fashion (clothing, shoes, accessories…)
- Free time and hobbies (concerts, guitar lessons, clubs…)
- Medicine/health (medicines, patches…)
- Kosmetik (Make-up, Nagellack …)
- Personal care/hygiene (shampoo, deodorant…)
- Miscellaneous/Emergencies
The categories can be adjusted at any time, just like the budget itself. Tip here: Address changes before the start of a new month. In addition, you can of course also put together beautiful folders with transparent covers and sweet lettering. For starters, however, simple envelopes are also sufficient – they are cheaper.
The division: Determine the budget
Important here: The fixed costs, such as rent or insurance premiums, do not count towards the budget. Estimate what you spend each month on everything apart from the fixed costs and use part of this sum as a budget. You could put the difference between them in the envelope with savings or emergencies – and thus still have a small financial buffer in case of an emergency. Withdraw the amount you have decided on from your account. Tip here: It is best to have it paid out in small bills.
Now you can set a weekly or monthly budget. For example, 50 euros a week for groceries, 20 euros a month for cosmetics, 100 euros for fashion. Here you are completely free and can allocate the money in the way that is best for you.
Everyday life with the envelope method
The hardest rule is probably: only pay with the money that is in the envelope. In everyday life, this means that you only take the money for grocery shopping from the appropriate envelope, for example 50 euros. If you are now shopping for the week and you find out at the checkout that you have exceeded the planned 50 euros, things have to be returned at the checkout. This is not easy, but it is necessary in order to be able to save in the end. Then you pay in cash with the 50 euros. The receipt and change are then returned to the envelope.
The point here is to learn to get by with the money that is available. If you then put money from one envelope into the other, you quickly break the system and end up cheating yourself. Tip: It is best to leave the EC card at home the first time you go shopping. That way you don’t get tempted.
Envelope Method: Can this really save money?
Cash stuffing is most worthwhile for people who have little overview of their everyday expenses. Even those who like to keep lists and plan things will do well with the method – and end up saving. But how? On the one hand, cash payments force us to exercise a certain degree of restraint in everyday life. Thoughts like “Do I have enough money with me to be able to have lunch in the restaurant now?” have become rare for many people, and dealing with money has become almost unconscious. On the other hand, the envelope method also shows where most money is spent and where less than expected.
If you now find that you are regularly over budget in one category, such as eating out, you can start there and take cost-cutting measures. If you find that a category is rarely used to its full potential, you can put the remaining amount in a savings envelope, as well as any money left over at the end of the month. Other methods include the 52-week challenge or the 50-30-20 rule.
