Saving Money with Envelopes: A Method to Help You Save Up to 20%

There are many ways to save money and manage expenses. Among them, the envelope-saving method has been used for a long time and is suitable for those who want to be more disciplined when first starting to manage their finances. In this article, let’s explore this saving method with PTF.

What is the Envelope-Saving Method?

This is a saving method where you divide your income into different envelopes based on a pre-planned budget. With each envelope, you can freely adjust the amount of money according to your spending categories.

Fixed expenses such as rent and car payments are not included in the envelopes; you can pay these expenses as usual.

Example: With an income of 8 million VND, you may allocate 4 million VND for fixed expenses like rent and car payments. Then, you put the remaining 4 million VND into different envelopes. You might allocate 2.5 million VND for food, 500,000 VND for cosmetics, and 1 million VND for savings.

Is the Envelope-Saving Method Effective?

With this method, you can manage your spending more effectively since you will know exactly how much you spend on each category at the end of the month. By keeping track of each budget, you will be more cautious with your spending compared to making direct payments via credit cards or digital wallets.

Seeing the money in your envelopes gradually decrease will make you less likely to overspend. Studies have shown that dividing money into separate funds using the envelope method can help reduce spending by 15%–20%. Thus, this method not only helps control spending but also encourages saving. However, it also has some limitations.

Limitations of the Envelope-Saving Method

Lack of security: Since this method involves keeping cash in envelopes, there is a risk of loss or theft, unlike ATM cards that are protected by PIN codes or OTP authentication.
Inconvenience: Many people have become accustomed to cashless payments, such as using credit cards or e-wallets.

How to Apply the Envelope-Saving Method

Step 1: Set a Budget for Each Expense Category
First, track your spending for about three months to understand your habits and get an overview of variable expenses. You can use a notebook, an Excel spreadsheet, or a financial management app. Then, categorize expenses and set a budget for each category. Ensure that your budget allows you to meet your needs without exceeding your income.

However, don’t be too rigid in allocating the same amount each month. You can adjust your budget based on upcoming events and variable expenses, as long as your spending does not exceed your income and you can still save money.

Step 2: Prepare Envelopes for Each Expense Category
Next, prepare separate envelopes for each spending category. You can use envelopes of different colors, decorate them yourself, or purchase professionally designed ones. The most common approach is using regular envelopes due to their affordability and convenience.

Step 3: Set a Spending Limit for Each Envelope
Determine the spending limit for each envelope based on your actual needs rather than your wants.

Step 4: Divide Your Income and Allocate It to Each Envelope
When it’s time to distribute money, divide your income according to your budget. You can choose to allocate funds at the beginning or end of the month or on your payday. The key is to stick to a consistent schedule.

Step 5: Withdraw Money from the Designated Envelope When Needed
Whenever you need to spend, withdraw money from the corresponding envelope. If an envelope is running low, it’s a warning that you may be overspending on that category. Adjust your spending to avoid exceeding your budget.