Finance | 12 April 2022

Improve Your Saving Stamina

by Carlisle Homes

How this old-school saving tip can help you champion your finances.

Have you ever put yourself on a strict budget, only to slip after a couple of weeks and buy something frivolous? You’re not alone.

Willpower acts like a muscle. As with any other muscle, you can make it stronger by using it more often. In the meantime, though, your willpower can get fatigued with overuse.

If you have to make multiple financial decisions in a row, about what to buy and whether to spend money on something, your willpower wears out. This is because when you’re on a budget, you’re constantly making financial decisions, big and small, which opens the door to temptation and costly mistakes.

One very effective solution is to set up your finances in a way that maximises savings and minimises decision making. To do so, why not embrace some old school savings tips?

The original envelope method

The envelope method, otherwise known as the purse method, the jar method or the cash-stuffing method, is making a big comeback but in a digital form.

In its purest form, this budgeting method uses physical containers (such as envelopes or purses) to hold different amounts of money. Every payday, you allocate all of your funds to those envelopes. The envelopes may be labelled ‘savings’, ’groceries’, ‘bills’, ‘rent’, ‘clothes’ and ‘entertainment’, or any other labels that make sense for your situation.

Once an envelope is empty, it stays empty until the next payday.

Back before the advent of credit cards, this method made it close to impossible to splurge. If you only take the ‘groceries’ purse, or the ‘clothing’ purse out shopping, you cannot overspend. Spotted the perfect pair of shoes? Either there’s enough money in the clothing purse, or there isn’t. No willpower required!

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This old-school saving method reduces the need for willpower and provides a straightforward method for budgeting.

The envelope method for the modern era

These days, of course, we rarely if ever handle cash - and your electricity provider might look askance at you if you try and pay your bill with a jar full of coins. Enter the modern envelope method. Here’s how to put it into practice.

1. Work out how much you need for all of your rent, bills and other non-negotiable by totalling them up over an entire year and dividing. If you get paid fortnightly, divide the annual total by 26. If you get paid monthly, divide by 12.

It’s important to work it out based on a year’s expenditure because many fixed expenses fluctuate significantly. Calculating your electricity bill based on the Dec-Feb quarter will mean a nasty shock come August! Putting aside the same amount every month provides certainty and makes it easier to budget for other things.

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Work out how much you need for essentials based on a year’s expenditure as many fixed expenses fluctuate significantly.

2. Designate one account to handle your bills, rent and any other non-negotiable expenses. If all of these are paid by bank transfer or Bpay, you may be able to look for an online-only account to handle this part. These are often fee-free.

Set up a direct debit for the monthly amount you calculated in the first step. This goes into the bills account. When bills come due, you won’t need to stress: the money will be there waiting for you.

Whatever is leftover is your savings and discretionary expenditure money. How much you budget to each of these categories is up to you.

3. Sock away the savings. Whatever you’ve chosen as your regular savings amount, you should set as a direct debit to come out on payday. This goes into a specialised savings account that doesn’t have a card attached. Bonus points if you can find one that penalises you for withdrawals. You want to make this money as hard to access as possible.

4. You’re now left with the expenses that need to be paid via card or cash, and which vary from month to month. Those might include groceries, clothing and entertainment. What you do here depends on your spending habits and particular weaknesses.

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This saving method allows you to cover all your essential costs so you can spend your leftover savings on the things you love. Featured here: Sacramento, Redstone Estate, Sunbury.

Some people choose to combine all of these expenses into one ‘envelope’, which gives them the flexibility to splurge on a night out and make up for it with a week of home brand pasta meals. Others separate them out into multiple accounts to better keep track of each type of spending. If you struggle a lot with impulse spending, you might even want to revert to old fashioned cash. There is a psychological impact attached to handing over real, tangible money. For some people that might be an effective curb to impulse spending.

This system may take you a little while to implement, but the cost savings are immense. You’ll also give your willpower muscle a much-needed break so you’re less likely to slip up.

For more tips and tricks on how to save to afford the things that you love, explore the Finance section of our Home Files blog.

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