Saving Using the Envelope Method

My friend Juan Bernardo Patino (owner of Stock Market for Pinoys) once introduced me to the envelope method for saving. Basically, you just get one envelope and assign to it the funds that you intend to save for a specific purpose. If you have varying expenses that you need to save for, then you need an array of envelopes with each one assigned to just one expense. So if you have to pay for Electricity you get one envelope and assign to it "Electricity Bills". Then if you have to pay the water company you get another envelope and jot down "Water Bills" on it. And so on and so forth...

Because I overspent this September 2014, my siblings and my sister's best friend concurred that I need to use the envelope method. So here is the breakdown of my savings plan using the envelope method.

In terms of allocation, this would mean that for every 100 pesos I earn:

- 40% or 40 pesos will go to my Medicine envelope
- 20% or 20 pesos will go to my Food and Other Living Expenses envelope
- 20% or 20 pesos you can spend freely (put in the Free Spending envelope)
- 10% or 10 pesos goes to savings - not to be touched (put in the Savings envelope)
- 10% or 10 pesos will go to the Emergency Fund (put in the Emergency Fund envelope)

To make sure that I stick to my savings plan, my younger brother will hang on to the money for me. This means that whenever I earn anything, I have to turn over the gross income to him and we will separate the funds according to the envelope it belongs to. I also have to keep a small notebook into which I will write every expense that I have paid for. That way, I know exactly where I spent what and when. My younger brother acts as my "check and balance" so that he can help me control my spending. Also, he serves as my banker because I cannot take money from the envelopes without informing him first.

Of course, there are risks even with this method. For example, I am notorious for not listing down each and every expense I've incurred so there may be discrepancies. So that's my lookout. The money might also be stolen from my younger brother's place even if we put it in a locked cash box (after all, people are only human). I might also get into emergencies that might suck the life out of my emergency fund meaning we might be forced to get money from the other envelopes to make up the difference.

But saving this way is better than not doing anything and it's simple enough to follow regularly. So for now we stick to this method so that I don't go overbudget with my spending on a regular basis.