From skin care routine to refrigerator restoration, there is always a new Tiktok trend that will quickly get our attention. Recently, this is a “filling of money”, with videos showing the budget, well organizing their income in labeled envelopes and budget binders as they pass over their costs and available balances.
Although money filling can be a powerful tool for building financial discipline, this is not flawless. Here’s how filling with money works and how to avoid traps that travel to many beginners.
Money filling is a popular budgeting method that involves withdrawing salaries from your bank account and dividing that money into envelopes for each of your cost categories. It is also known as a method of budgeting the envelope.
Why? When paying with a card or digital method, it can be difficult to visualize your costs and keep track of where your money is going. With physical money you can physically see how much you have available to spend. Plus, you feel the “pain of paying” that comes with the handing over your hard money.
“I recommend the envelope method for years to people who tend to overcome in certain areas,” says RJ Weiss, a certified financial planning and executive director of how wealth.
Weiss explained that if you would like to implement a cash filler, this does not need to be applied to your entire budget. “Just choose a few categories in which you usually overdo it,” he said. “This way there is a firm stop, a very black and white line every month, whether you spend over or below your budget. Either you have money or not.”
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Filling money is simple in theory, but it’s easy to make mistakes if you have never managed your money that way.
Here is a look at some common sliding you will want to avoid.
A walk with a large amount of money can put you at risk of losing or theft. If you are going to start filling with money, it is important to carry only the money you plan to use for purchases on this day and store the other envelopes in a safe place (such as the FDIC-insurer check or savings account).
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In a digital world to go only in cash can be complicated. So many accounts and repetitive payments – from mobile phones, utility companies and subscription services – are usually made cashless.
So, it is important to look at which categories of costs you can pay realistic cash and see if your bank offers budgeting tools that will allow you to create virtual envelopes or savings buckets for your only digital payments.
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If you need to immerse yourself in other envelopes to cover your costs, it is a sign that you need to reassess the amount you spend on each cost category.
Borrowing money from other categories can make it difficult to track how much you spend. Take a little time to review each cost category and process the amounts in the dollar so that they are more made in accordance with what you spend every month.
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As the assignment of every dollar on an envelope is at the heart of the money filling method, it prevents your additional funds from earning interest and growing over time. Therefore, the filling of money, although effective, should be a short-term budgeting method to help you get your finances on your way-not a long-term wealth strategy.
For example, say you store $ 1,000 in a savings envelope. If you had to invest this money in a 4% APY savings account, you will have an additional $ 40 at the end of the year, even without additional contributions. This may not look much, but it’s $ 40 you wouldn’t have otherwise. And if you continue to contribute regularly to your savings account and increase the balance over time, your revenue will be a snowball thanks to the complex interest rate.
This does not mean that the envelope method does not help you increase your savings. Watching the savings envelope growing more can certainly help you motivate you. However, the use of this method long -term means leaving additional revenue and long -term growth potential.
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Budgeting envelopes can be effective, but it is not necessarily easy. You are required to engage in the exact amount of costs for each category, not a penny. Some budgets may find this trip to limiting financial freedom.
“The mistake I see most often are the people who try to get in immediately,” Weiss said. “Just start with three to five areas where you exceed, or even just one. The concept works, but if it’s too much to maintain, you won’t stick to it.”