Financial expert and businessman Dave Ramsey, is one of the biggest advocates of this simple way of budgeting. “Grandma’s way to handle money still works,” Ramsey says as he continues to encourage people to make money matters simple through using the envelope system of budgeting.

Step 1

The first thing you need to do is write out a budget of your monthly income and expenses. Once this is done, zoom into your expenses and find the places where it would be beneficial for you to use straight cash to purchase. Tick these expenses off and then get yourself a set of envelopes. They can be plain, coloured or patterned, just as long as they are envelopes.

Step 2

Once you’ve made sure that every expense has been taken into account, and you’ve labelled those that can be paid for or bought using physical cash write each category on an envelope. For example, an envelope for groceries, one for toiletries, and another for entertainment. On each of these envelopes you would then write the fixed amount for each expense. Remember that you are the one who decides what each category is, and how much goes into it, so if you want to include a ‘splurge’ envelope do it. As long as it’s budgeted for and you have the cash, you’re fine.

Step 3

When it comes to paying money for each of these, you then use whatever is in the envelope. So if you go out and buy items that fall in your grocery list for R500, and your budget is R1000, then the leftover amount in your envelope that you can still use is R500.Only spend the amount that is stipulated on the envelope for the specific expense.

Step 4

It’s important to be disciplined about the amounts that you spend for each envelope. If it says that R600 is allocated to entertainment, then stick to that. Don’t pinch money from your savings or use your credit card once that money is gone. Keep in your mind that the point is for you to be able to know exactly where each rand of your hard earned money goes. So to steal from another envelope or card, would be stealing from yourself.

What’s important to remember here is that using the envelope system encourages you to develop healthy spending habits. You will begin to see that you will not spend money that you don’t have, because there will literally be nothing left in the particular envelope for you to spend. Remember that you will not be able to pay off all your expenses using this system, because there will be costs that go straight off from your card. So as mentioned before, use this system for those things that you would ordinarily use physical cash for. It’s also been suggested that if you use physical cash, there is more recognition of the fact that you are actually spending money. Which is much more different from the mindless and emotionally detached act of swiping a card.

So try it out and see if it works for you, but remember that creating habits takes time. Be patient with yourself, and recognise that the journey towards financial freedom, although sometimes filled with challenges, will be worth it in the end.