Budget wallets are one of the best methods of keeping my spending under control that I go back to time and time again! I truly think it’s one of the most effective techniques for me. There are few pitfalls to avoid that sometimes make me give up on this method, however I always go back. Below, I’ll go into what budget wallets are, some of the mistakes people make, and what to do instead!
What are Budget Wallets??
Budget wallets or budget wallets are a simple way to predetermine your spending for the month or some other decided period of time. You stick with cash, so there aren’t any surprise large credit card bills at the end of the month, and therefore – no surprise interest charges! Break up your spending into categories, and after taking a realistic look at your expenses and finances, you decide how much you want to spend for each. Then you preload each of your wallets with that amount of cash and that’s it! When that money runs out, it runs out. No more spending in that category until the budget cycle refreshes.
My Method
So first I will go into my method that works best for me!
To start, I sewed the envelopes you see right above. They are more durable than paper envelopes, and are also color coded so I can easily access each category. You can just use paper envelopes or buy sturdier ones online. Coupon holders work well!
I have narrowed my categories to three – Groceries, Eating Out/Bars, and Miscellaneous. I do not use this system for any recurring expenses like rent, loans, utilities…this is strictly to handle the money I have left after all of that.
I keep a cup in my bedroom closet for each category. At the end of the month, money I have leftover in my wallet (if any!) goes in the cup. This is spill over in case I spend more than normal in a certain category in the future. I also keep a “back to the bank” cup that I use for any credit card purchases (explained more below). You of course don’t need to use a cup, you can have additional wallets or whatever you like. I just like to easily see it visually accumulate!
Now, I will admit I’ve had my attempts with this method and would end up going back to my regular spending habits. However, I think I’ve solved most of my issues. Here are few that I’ve come across.
Pitfalls and Solutions
Getting past those credit card rewards
I struggle with the idea of using cash simply because you miss out on all those credit card rewards. However, I got past this by focusing on the main goal which is saving money. Sticking to my strict cash budget makes me spend less than I do with a credit card, and unless you are a pretty big spender, those credit card rewards don’t really add up that much.
There is always some amount of online shopping which I use a card or PayPal for, and I use a credit card for gas because I can’t be bothered to go inside and prepay every time. So, I still get rewards for those purchases. When I buy something online, I pull that equal amount of cash out of the corresponding cash wallet and put it in the “back to the bank” cup. That way I’m still staying consistent with my budget.
Going over budget consistently
If you are too strict with your budget and you aren’t realistic about it, you’re always going to go run out of money. It’s good to be tough on yourself (otherwise there isn’t much point of budgeting), but you can’t pick numbers that aren’t obtainable. If you do, you will just get discouraged and feel disappointed. When you can’t make a certain budget, try upping it by $50 dollars or so for the next month and see how it goes. If you always have a lot left over, tighten it up next round to challenge yourself.
Picking too long or short of a time frame
I find that a period of a month is ideal for your budget. Weekly gets a bit overwhelming, and going longer than a month starts getting hard to manage and track. However, I have picked monthly budgets – say $200 a month for groceries, but in my mind will still try to maintain spending approximately $50 a week. Breaking it up mentally helps you keep on track, but having to reload the wallets too often can get confusing.
Borrowing from other envelopes
One issue I often run into when I make too tight of a budget is running out and then grabbing from other budget wallets. This totally ruins the fun and success of adding extra at the end of the month to my excess cups! And everything gets messy and I lose all of my progress. The best solution for this is being realistic about your budgets. I have also started a method of giving each extra cup in the closet an initial buffer bonus of an amount of your choosing. This way if I go over for the month, I can pull from that category’s cup, not other category wallets.
Making too many or too few categories
Keeping it as basic as possible while still having individual categories is the best way to stay on track. You don’t want to have a budget for shampoo and another budget for conditioner for example (unless maybe you are running a personal salon!). If you have too many categories you will get overwhelmed. Everyone’s spending is different, but a good rule of thumb is not make a category for anything that is less than a 1/4 of your monthly spending. If it’s more than 1/2 you maybe want to break it down if possible.
In Conclusion…
Budget wallets are a great way to keep on track with your spending. Be tough, but realistic! Stick with it, and enjoy kicking high credit card bills to the curb! Have any of you tried this method before? What works best for you? Leave a comment below!