As a child growing up in Sri Lanka, I remember watching my father work with his money. It strikes me that the principals he practised back then are of timeless value even today.
On payday my dad would take a bundle of envelopes and mark the family expenses on each one – power, food, fuel etc. – and then he would put certain amounts of money into those envelopes to pay for our needs. Whatever was left over was for discretionary spending.
My dad taught me a timeless principle and system for managing money. Today we don’t use envelopes because technology has moved on (it would also not be a very clever commercial decision to keep your money in envelopes when they could be earning interest).
However, you can still apply the envelope system to your bank accounts. This will help you pay the most important things first, rather than leaving a tempting reservoir of cash to be frittered away. Ever been surprised at how fast money seems to disappear?
Consider establishing several bank accounts, like envelopes. These may be as simple as:
• Fixed expenses, for your mortgage or rent, power, telephone and other automatic payments.
• Variable expenses. These may vary according to need such as fuel, food and clothing.
• Savings. Perhaps you want to go on holiday, own a particular item, or set aside cash for a rainy day. Your savings account would be for this money.
Then decide what are the things to pay first, middle and last. This reminds me of the story of the professor and the jar of rocks. A philosophy professor stood before his class and picked up a large, empty mayonnaise jar, which he proceeded to fill with rocks. He asked his students if the jar was full.
They agreed that it was, so the professor picked up a box of pebbles and poured them into the jar. He shook the jar lightly and the pebbles rolled into open areas between the rocks. He asked again if the jar was full. They agreed it was.
The professor picked up a box of sand and poured it in and the sand filled up everything else. He asked once more if the jar was full. The students responded with a unanimous yes.
The professor produced two cans of soft drink and poured them into the jar, filling the empty space between the sand. The students laughed.
This is a story about the big things in life, the important things and the small things. The same principal applies to money. If you spend your money on the small stuff, you leave less room in the jar for the big and important stuff.
Our advice is to establish your priorities and pay accordingly. Mortgage or rent, food, tithing and the things you need to live, followed by your other obligations and savings. If there is anything left over, you can spend this on the luxuries.
Technology may have changed the way we live and do things, but some principals – like the envelope system – are timeless. Technology also allows you to study how you are spending your money so you can make changes.
Grab your bank statements and do an analysis of how you are spending your money. If you find that you are always short of money, this exercise will help establish why. I guarantee you will be shocked or surprised at your findings.
Do you have a better system? Do you have a question you would like to ask? Please feel free to email me or pick up the phone. We at Baptist Savings would welcome your feedback, comments and questions.