In: Finance
It is one thing to prepare a personal budget; it is another thing to stick to it. Financial planners have suggested various mechanisms to provide support for enforcing personal budgets. One approach is called “envelope budgeting.”
Instructions
Do an Internet search on “envelope system money management” and then answer the following questions.
a. Envelope budgeting:
The envelope budgeting method is a simple and popular method which is used for saving money and bill payment. It is a systematic approach for personal budgeting. The method helps you set aside what you need for bills while maintaining a personal budget.
The envelope method was used when we were using cash for paying bills compared to the present scenario of online payment. People will seperate different monthly mandatory bills like electricity bills, telephone bills into different envelope. In these envelopes cash are distributed such that monthly payment of the bills is made possible. Even in the current scenario certain software help us to follow this method which can create a systematic way of saving and spending.
The advantage of this method is that it forces you a certian spending habit and restrict over spending in a sperate category such as entertainment, restaurant etc.
The process is as follows.
1. Create categories and maximum allowed amount: Total amount alloted should not exeed your monthly income. Generally a fraction of monthly income.
2. Make clear labels in each Envelopes
3. Separate Funds: Based on the actual expense/ historical expense allocate funds into these different categories like telephone, automobile fund, home rent, entertainment etc.
4. Start using the fund from the envelope.
b. Evaluate whether you think you would benefit from envelope budgeting. What do you think are its strengths and weaknesses relative to your situation?
Yes, if used in a proper way people can benefit from the use of envelope budgeting.
Strengths:
Weakness;