From skin care routines to refrigerator renewal, “Tiktok” is always a new trend that quickly attracts our attention. Recently, it has been a “cash filling” with videos that provide budget budgets that manage their income into labeled envelopes and budget binders as they move through their expenditure categories and the available balance.
While cash filling can be a powerful financial discipline tool, it is not flawless. Here’s how cash filling works and how to avoid traps that raise many beginners.
Cash filling is a popular budgeting method that includes removal of salaries from your bank account and dividing those cash into each envelopes for each category of your expenditure. It is also known as an envelope budget method.
Why? Paying by card or digital method can make it difficult to visualize your costs and track where your money is going. With physical cash, you can physically see how much you have to spend. In addition, you feel the “payment pain” that comes in passing hard -to -earned cash.
“For many years, I have recommended the envelope method for people who are prone to too much to spend in certain areas,” said RJ Weiss, certified financial planner and CEO of property methods.
Weiss explained that if you want to install cash filling, it does not have to be applied to your budget. “Just choose a few categories where you usually go overboard,” he said. “This way, it is difficult to stop every month, a very black and white line, whether or not you miss a budget. Whether you have cash or not.”
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Theoretically, cash filling is simple, but it is easy to make mistakes if you have never handled your money.
Here’s a look at some of the usual slips you want to avoid.
Walking with a large amount of cash can lead to risk of losing or theft. If you are going to start stuffing cash, it is important that you only carry the money you plan to use that day for your purchases and keep the remaining envelopes in a safe place (eg FDIC insured check or savings account).
Read more: How to save cash: 7 ways to protect and expand fluid savings
In the digital world, only cash can be difficult. So many accounts and repetitive payments – from mobile phone suppliers, utility companies and subscription services – are now usually done in cash.
So, it is important to consider what expenditure categories you can actually pay in cash and find out if your bank offers budgeting tools that will allow you to create virtual envelopes or savings buckets for your digital payments only.
Read more: How much cash should I have at hand?
If you have to dip into other envelopes to cover your expenses, this is a sign that you should re -estimate the amount you postpone for each expense category.
By borrowing money from other categories, it can be difficult to track how much you actually spend. Take some time to review each category of expenditure and redesign the dollar sums to make it more matched with what you actually spend every month.
Read more: Your guide to the essential categories of each budget should be
Although the assignment of each dollar to the envelope is the basis for the cash accumulation method, it certainly prevents your additional funds to earn interest and grow over time. That is why cash filling, though effective, should be a short-term budgeting method that will help you help your finance-not a long-term assets creation strategy.
For example, let’s say you keep $ 1,000 for savings in an envelope. If you put that money in a high -yield savings account of 4% in the AP, you would have an additional $ 40 at the end of the year, even without any additional contributions. It may not seem like that, but it is $ 40 that you should not otherwise. And if you continue to regularly contribute to your savings account and increase your balance over time, your earnings will be snowball due to composite interest.
This does not mean that the envelope method does not help you increase saving. By observing your saving envelope, growth can definitely help you motivate you to continue. However, using this method for a long -term period means spending additional income and long -term growth potential.
Read more: Top 10 available saving accounts today
The image budget can be effective, but it is not necessarily easy. This requires you to commit to the exact amount of costs for each category instead of a penny. Some budget participants could find this trip to restriction of financial freedom.
“The mistake I see most often is that people try to go out right away,” Weiss said. “Just start from three to five areas where you spend too much, or even one. The concept works, but if you are under the supervision, you are not going to follow it.”