For the first couple of my earning years, I had never really budgeted. I was frugal and was still living like a student. I was able to save up a reasonable sum of money and subsequently paid back my parents for the expensive MBA I had undertaken. I was then introduced to this app called Walnut by one of my flatmates.
For those who don't know, Walnut is an app that reads your credit card and bank spend SMS and automatically categorizes into the relevant expense bucket. While the tracking is convenient as it is automated, there is no budgeting really. You can't demarcate sub-budgets for the respective expense budgets. While the app seemed great initially, it added nothing but stress at the end of the day. There was no budgeting but only expense tracking. Which gave me a hard-earned realization - If you don't control where the money is going, it will control you. This might seem obvious but it was a revelation of sorts for me. While not a deciding factor, data privacy issues were also at the back of my mind.
The Envelope System
So after some researching, I found the envelope system. The simplicity of the system was really astounding, it works something like this
- At the start of the month, take out physical envelopes for each bucket of the month's expense. For e.g. Rent, electricity, groceries, maid etc etc
- Demarcate your month's sub-budget for each of the expense buckets
- Fill the envelopes basis the sub budget identified
- Spend only from the respective envelope for the relevant expense. E.g. you only pay for groceries from the groceries envelope.
Benefits of the physical envelope system
It is simple but ingenious really. The true success of the system lies in establishing physical envelopes. It works on the psychology that you would spend less when using cash instead of digital payments. However, in this day and age, it is slightly tough to do fully rely on physical envelopes so this had to be digital for our expenses. If you can manage the physical envelope system, go for it! Do let me know how this has worked out for you?
Digital envelope tracking
I tried tracking my expenses on an excel but it was rather inconvenient, the solution had to be easily accessible like your phone. The solution had to be an app for me. After some research, I stumbled upon goodbudget. I have been using this app for about a year now and am pretty happy with it. The free version that we use currently allows for 10 envelopes. We know how much exactly is left in the respective bucket, so we prioritize spends accordingly. Doing this exercise over a couple of months, helped us identify the right budgets for respective expenses. This has given a significant level of mental comfort. Spendee is another app that you could use, Savinghabit has a great review of this.
What system do you use to track your expenses and keep it under control? Share them in the comments below