Debt Liberation: 5 Tips to Instituting the Envelope System

Debt Liberation: 5 Tips to Instituting the Envelope System

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In a suffering economy, more people are learning the importance of financial freedom and living debt-free to increase their wealth. One of the most common methods to staying within a budget and preventing overspending is by using an envelope system. By relying on cash instead of credit cards, it makes it easier to become aware of what you have left throughout the month. To start the envelope system, there are a few tips to practicing the method and reaping the rewards.

1. Track How Much is Spent

It’s important to write down how much cash is left in the envelopes to ensure that you stay within your budget. After spending money, place the change back in the envelope and write down the new amount that you have.

2. Label Each Envelope

To keep your system organized, it’s important to label each envelope and detail the amount of cash that is budgeted. This will allow you to know how much to refill the envelope with on payday after creating a budget that you can afford.

3. Avoid Cheating

The envelope system will only work if you avoid using the cash for unnecessary items that are not specific to each category. Avoid cheating or taking the cash out when it’s not needed, which will cause you to overspend and can lead to more debt. 

4. Use the Leftover Cash

There will often be times when you have cash that is leftover in specific envelopes at the end of the month due to underspending. Use that money to reward yourself for staying within your budget and don’t be afraid to spend it on something fun that is not within the category.

5. Have an Envelope for Fun Spending

To instill discipline with your spending habits, it’s important to budget for fun activities or shopping. Create a specific envelope for fun money, which can go toward entertainment, clothing, or eating out throughout the month. Having money set aside that can be used for fun will prevent cheating with the envelope system and will allow you to feel rewarded with a part of your paycheck.

Although it can be difficult to repay debt and stick within a budget each month, the envelope system can help you to stay organized and prevent overspending. By depending on cash and avoiding credit or debit cards, it will make it easier to track what you purchase and have enough money to last each paycheck

Information provided by WBLI Incorporated, a Nova Scotia debt consolidation firm.

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