The envelope method · Step 3
Set up your essential envelopes
Your must-pay envelopes come first. Find them with one question: what would you still have to pay if you lost your job tomorrow?
If you lost your job tomorrow, what would you still have to pay? The answer is the most important list you'll make.
Make a group called Essentials
Envelopes can be grouped. The first group to make is Essentials: the things you have to pay.
Use this test: what would keep you alive and housed? For most people that's rent or mortgage, food, electricity and water. These are only examples. Your list is yours.
Must pay, could reduce or optional
Every envelope has one of three levels:
- Must pay: there's no choice; it has to be paid. Rent is a must pay.
- Could reduce: you need it, but you could spend less.
- Optional: you could stop completely.
Everything in Essentials is a must pay.
Daily pace for everyday spending
Some envelopes are hard to judge day by day. Food is a good example: you budget for a whole month, so how do you know you're on track today? Daily pace takes what's left in the envelope and splits it over the days left in the month, so you can see how much you can spend each day.
Do it in Smarter Budget
- Make a group with New group… and call it Essentials.
- Add an envelope for each essential.
- In each envelope, set How much choice? to Must pay, and give it a Target.
- For food, turn on Daily pace.
When they're all in, What you need each month shows the least you need to get by. You'll use that number in step five.
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General information only, not financial advice. Think about your own situation, and talk to a qualified professional before big financial decisions.