My grandmother swore by the "envelope system," and insisted that it was the best method for money management. She is an absolute wiz with money, so when she first brought it up I was intensely interested. The premise is that once you get your paycheck, you divide all the cash into your different budget envelopes -- essentially budgeting in a way that visibly and tangibly gives you a monetary cutoff once you've spent all your allotted budget for any particular expense. While brilliant in theory, it's not terribly practical for a modern bank account.

Pulling out cash is nice for certain things, but most of us receive direct deposit or a check, and turning all that into cash not only is an extra time commitment most don't have, but also removes the benefit of reaping interest from leaving that money in the bank. So I updated that system and looked into other ways this sound advice could be applied to a modern income.

Old tricks for new dogs

While being able to physically see Your Money and have that hard cutoff with the envelopes is very appealing (especially to those of us whose money burns a hole in their wallet, or those who have several households to support) simply noticing where your money is going to can be the difference between living hand to mouth or living comfortably with a growing savings.

Be intentional in how you spend and save. When you start this process, sit down and figure out what you realistically spend on:

  • Rent/mortgage
  • Groceries
  • Any insurances if you hold your own coverage outside of your employer
  • Phone bill
  • Loans (school, car, etc.)
  • Recreation/fun money (yes, this is an essential, and yes, it should have a hard budget limit)
  • Other current expenses

This also means you need to check your bank accounts daily.

Keep all receipts that are from any type of card transaction. I literally keep a shoebox and empty them from my wallet into there. Its saved me from issues more than once, and takes about 10 extra seconds out of my life. Completely worth it.

Once bills are accounted and planned for with upcoming income, any extra income goes straight into savings.

No ifs, ands, or buts about it. Even if you only end up with a spare $10, in it goes. Every little bit adds up. This is perhaps the toughest step, especially when you have a larger influx of income in a certain month. Many friends of mine have also expressed great success with splitting all extra money for the month between savings and their loans. Some loans have penalties if you make payments early, so check the details of yours first before you attempt to do this, but if there are no penalties, it's a great way to chip away at the large total and bring the interest you end up paying down.

Stick to that budget

I know how tough it can be to remain steadfast, but if you stick to essentials only, you will see your savings flourish. Start small, reevaluate your budget for the first few months to find the balance between practicality and frugality, put that money to work, and have fun watching your savings grow.