Monday, December 31, 2007

Saving money like Grandma did (and not in a mattress)!!

Today's tip on saving money is going old school. That's right, we're going to talk about a very inexpensive, simple way to save money, and it won't cost you a thing to start. You'll be amazed and astounded at how well it will work for you, if you give it a chance.

I'm talking envelopes here, people. That's right, plain old white envelopes...the kind we all use to use to mail letters to each other with, before we became addicted to email, instant messaging, instant chat, and yes, even blogs! Seeing as we don't use them any more (for the most part), I'm sure you have some lying around your home somewhere.

This is so simple, it will blow your mind. I'm not kidding. Seriously. This works best with a budget (which I'll probably talk about tomorrow), and will actually help you stick to the budget as well. Here is what you do...put the cash you have allotted or budgeted for something, and stick it in an envelope. That's it. That alone will save you money. How, you ask? It's not earning interest, you is just sitting in a paper envelope. True, but the magic lies in the psychological aspect of it.

Years back (a LOT of years back, like early last century), society did not have credit cards, especially not easy access to them like we do now. People saved their cash, whether in a bank, or in you guessed it, envelopes. Whether saving for vacation, a car (or mule, depending on how far back you want to go), or even a house, people would save their cash, and only spend what they had on hand. See, the great thing about cash, is once you are out of it, you can't spend more of it, until you get more in your hand.

Take for example your weekly (or bi-weekly, or even monthly) food budget. My wife and I use a monthly budget. Just for easy math, say we budget $400 a month for groceries. Break that down to weekly (as we base our menus on what is on sale each week at the grocery store) sums of $100, having a separate envelope for each week. Now when we go shopping, we buy whatever we need or want, as long as it is under $100...if we are over it at check-out, we have to put some stuff back, until we are under the $100 limit. By paying with the cash in hand, we can not overspend, because that is all we have. If you buy on a credit card, or even a debit card, you often will rationalize the extra purchase ("it's only $2 over"). Well, that $2 (or whatever sum it was) has to be taken from somewhere else, now, possibly leaving you short for a bill payment. Worse, you can easily overdraw or go over limit your checking or credit account, costing you huge fees, that can quickly reach hundreds of dollars extra (now that is NOT saving money). A quick personal example, I tried to transfer some money into my checking account, from another account. The bank messed up on their end (I had a print out showing it had been completed). Well, I made a purchase, and it overdrew my account, and long story short, I had ELEVEN bounced checks, which the bank tried to charge me $385 in fees for, not to mention the fees the other business wanted to assess me. What a headache it was getting it fixed (thankfully, I ended up not having to pay anything). This just shows how quickly those fees can add up, and paying the bank hundreds of dollars is not saving money.

So give it a try! Just pick one area of your financial life, and test it out for a few weeks. Set a limit for something (food, entertainment, gas, etc), and put that amount of cash in an envelope (remember to carry it with you), and write on the envelope what it is for. When it's gone, it's gone, until the next time you would refill it (ie - a paycheck). You'll be surprised at how quickly your money will stretch, and how quickly you'll save it, using this method. And remember, SAVING MONEY is MAKING MONEY!


Sal said...

do envelops really work like that? wont you just spend the money you have in them easier? dont know if it would work.

Steve said...

Sal, thank you for visiting my blog, and for leaving a comment. Yes, using envelopes works, though you do need some self-discipline to use them. One thing my wife and I found was that we had a hard time making sure we recorded all the purchases we made using our debit/credit cards, so we did not really know where our money was truly going to, nor how much we actually had left. When the cash is gone, the cash is gone. Hope that makes sense. I hope to continue to earn your future readership.