Saturday, August 3, 2013

My Personal Saving Technique: The Envelope System

I would like to share to you my saving technique, given that I and to all of you who despised math, this technique was just made for us since it is easy and convenient. I had this idea when I saw it on TV and one celebrity (forgot her name) introduced this envelope system. So, since this technique has nothing to do with complicated computations nor the use of an excel system (which I also hate), I decided to try it on my own.

Voila, it worked! I mean, I have been trying to save and I wanted to save since it is important in today's economy. The only question was how to do it.

Thanks to the one who developed this system and for those of you who wants to know how this system works, let me explain in the simplest way this overcrowded (which means chaotic also) brain of mine could explain.

First, you need to determine your income.  Then, you list down categories which are important to you. Next, you get the same amount of envelopes as the number of categories you have in mind. Be realistic, list down only those which are considered important. In my case, I have six (6) categories, these are:

  • Expenses -comprises of 50% of my income. This is where all the monthly expenses shall be taken from such as rent, daily allowances, food/groceries, bills, gym memberships, etc. This category is both fixed and variable, meaning there are expenses which are fixed monthly (rent) and there are those that can be adjusted such as food (you may want to lessen eating out, bring baon to work instead,etc.) where if you think other expenses are on over-budget, then you can get the excess from other expense categories. Note: you should not get anything from your savings, investments,big purchase envelopes once you over budget in your expense envelope. Learn to be flexible and creative on how to fit in your monthly expenses.

  • Savings/emergencies- This comprises 20% of my income. Once I received my salary, this is the first category I fill in. Savings is important and it should be the number one priority in setting aside your budget. This envelope is also used for emergency purposes such as, a sudden lay off, someone got sick and someone (a family member) needs an emergency financial assistance. As the term goes, emergency allowances are for future and unexpected turn of events where money is needed. It is always prudent to have emergency allowances. Note: Do not touch this category unless you have an emergency.

  • Investments - This comprises 10 % of my income. Savings is important but investing what you save is better. As we all know, saving your money in a bank might catch up with rising inflation so it is not wise to just save. Also, when you say investment, it should mean that there is a return of investment (ROI). Some considered buying a house an investment, but I personally don't agree since having a house does not give any returns unless you rent it out. A 10% allotment for investment maybe too low for others, some alloted their income more on investment so it really depend on you.

  • Big purchases- This is also a 10 %. Big purchase may include buying a flat screen TV, laptop, etc. I included this so that even if I am really saving, I won't miss out on having things which I believed is self-rewarding. It should be noted that this category might take quite a long time to realize. Note, be patient. You would have those latest gadget in no time if you persevere.

  • Splurge- This is a 5% allotment. I believe that you should also splurge and reward yourself from time to time. Catching a movie, buy some clothes and eating out are considered self-rewards. Unlike big purchases, this category focuses more on little purchases. Note: in case you over-budget in your expense category, you may also get the excess from here.

  • Charity- This another 5%. This category is reserved for 'giving'. Giving is as much important as receiving. Thus, you can give what you allot to church or charities of your choice. This category can be used also to buy gifts to your family, friends and loved-ones.
I have been practicing this system for 2 years and I would say, it is very effective. All you need to do is discipline. If one of your splurge envelope is empty and you are all itching to buy yourself a new shoes, you just have to scratch yourself and get out of the mall instead or you can 'borrow' from other categories (except the savings/emergency envelope) but make sure that you 'pay' that category in the next payday. Happy saving! =)

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