Title: How I automated envelope budgeting, and used it to save for important goals

Ever heard of envelope budgeting aka sinking funds? Its a traditional system where folks would take their paychecks in dollar bills, and split it across different envelopes for different spending budgets so they can only spend what’s inside the envelopes.

Wow, such primitive!?! Why would anyone still be doing this today?

Why Envelope Budgeting works

Envelope Budgeting works best for balancing few buckets / priorities to optimize your discretionary spending. It works because it is intuitive and easy to use.

It is as simple as checking how much is left in the envelope, and then making a decision on whether you can afford that next spend. When there isn’t a lot of money left in the envelope, you quickly learn to prioritize what is important, and what can be deferred or even eliminated. And it works both ways – it reins in reckless spending, and it also removes the guilt of spending for savers.

Search youtube for envelope budgeting, and you will find a ton of videos, from various names like Gail Vaz-Oxlade and Dave Ramsey. Its popularity is testament to its effectiveness.

Tips to make it work

• Keep your “envelopes” to eight or less. Focus on the priorities and important spend categories, and leave the minor stuff under one bucket or “others”. If you maintain too many “envelopes”, you will only drive yourself insane, and quit using the system.

• The budget needs to be realistic. Start with what you spent last year, and aim for reasonable changes. Start small, and increase them gradually. Smaller changes are easier to maintain over time. Its like dieting – trying to switch entirely to only poached unsalted vegetables and chicken breast can only go so long, and make you want to quit.

• Your available balance in the “envelopes” should be readily obvious for on-the-fly decisions if you should pay for that "thing". Automate the process where possible.

• You should always have a budget for entertainment or wants. The budget can be low, but it absolutely cannot be zero. Trust me, it drives people nuts.

Using Saving Goals to automate Envelope Budgeting

There is an under-rated feature within OCBC online banking called Savings Goals. I have been using it for a while, and my setup looks like this:

Savings Goal / Envelopes for...

1. Rewards: Travel budget, buying “toys” and “wants”.

2. Retirement: For SRS and Retirement Sum Top Up.

3. Refurbish Home: For buying new furniture / appliances / renovation

4. Reinvest: For investments

5. Reserve: Emergency funds, non-monthly bills or expenses such as insurance premiums that are paid annually.

6. “Float1” / 360 account available balance: For paying monthly bills, eg mortgage / credit card bills, utilities / income tax.

7. Redistribute: For giving angpows or buying presents for family

8. “Float2” / Frank account available balance: Own spending allowance with weekly top-ups.

Two bank accounts, six saving goals, and ta-da !! Eight envelopes / budgets.

Why the Savings Goal feature is awesome

• Funds in savings goals are counted towards the interest earned, but are “locked” and not part of the available balance for ATM withdrawals or GIRO deductions.

• Simplifies envelope budgeting – each goal becomes its own bucket / envelope, and you can do it all from the same bank account, especially like one which offers a higher interest rate.

• You can use the recurring monthly top-up / funding / saving feature to automatically set aside money towards the goals.

• You can withdraw from the savings goal to put monies back into the AvailableBalance to pay for approved expenses.

How Envelope Budgeting has enriched my life

Since expanding on envelope budgeting with savings goals, all my spending has been very mindful. I have aligned my priorities, and now no longer feel guilty or bad about how much I spend, since they have always been within what’s left in the “envelopes”, and after setting aside money for SRS, investments, and other savings.

I hope this article has shown you how envelope budgeting can be done easily. I would also like to encourage readers, like Gail did, to try it out for three months – and share in comments if you have more money than you did before this.