Without knowing how the month ends and you are not sure what you spent the money on? If your answer is yes, your diagnosis is clear: you suffer from the discomfort of lack of control in your finances. And so, saving is complicated. Therefore, we are going to propose a remedy that can cure your illness, it is simple to put into practice: the 6 envelopes method.
A simple and efficient saving technique.
The 6 envelopes method stands out for these two characteristics. The only thing required is 6 envelopes and eager to see how your savings grow little by little. Because there is nothing more rewarding than checking how something we put into practice pays off. In addition, this method of saving also helps to create habit and have greater control over our finances. You will know clearly how much money you enter, how much you are going to spend and how much you have for expenses.
How to save with the 6 envelopes method
The 6 envelopes method is the work of Canadian writer and entrepreneur T. Harv Eker, author of the book ‘The Secrets of the Millionaire Mind’. As you may have guessed, this technique consists of separating your money into six large blocks, which you must store in six envelopes. Also, you can do it with boats, boxes, piggy banks … Or whatever you have on hand at home. Because the important thing is not to spend on unnecessary things and end the ant expenses.
Let’s see now how you should distribute your money:
- Envelope 1 – Expenses. In this first envelope you must take into account unavoidable fixed expenses such as mortgage payment, rent, bills, food … For this, based on this method of saving, it is recommended to allocate 55 percent of your income.
- Envelope 2 – Long term savings. 10 percent of what you enter, you must put it in this other envelope. A trip, a house, a car …? You save now, you will define, when the time comes, how you invest what you have saved. With this amount you will be building, almost without knowing, your emergency fund.
- About 3 – Leisure. As we have already told you on other occasions, saving is not about stopping doing everything that makes our life happy. How boring! It is a matter of setting priorities. It is clear that you will have to give up some outing with friends, lunch or dinner out there whenever you feel like it… Saving requires an effort on your part and it translates into this. According to the 6 envelopes method, to Leisure you must allocate 10 percent of your income. With this money, you can go to the theater, to the movies, go out to party …
- About 4 – Education . Another 10 percent of your income will be used to train you. Do you want to take a course, a master’s degree or a postgraduate? This is the money with which you will pay for your training in the future. Keep in mind that the better prepared you are, the better job opportunities you will have, which will result in a higher salary.
- About 5 – Free finance . The purpose of this other envelope is to be able to take advantage of your money and generate income for you. You can invest it in a savings account, in a pension plan, in a fund … Save 10 percent of your income every month and when you have a certain amount, evaluate the different options and choose the one that best suits your needs. If you need advice, do not hesitate to go to any office of the Caja Rural Group, where we will inform you of all the alternatives available to seek a return on your money.
- Envelope 6 – Donations. This saving technique contemplates 5 percent of your income for donations and to support those causes according to your ideals. Making a better world is something that concerns us all. With the amount of this envelope you can allocate the amount you want to a good cause. From 1 euro per month, you can help a shelter for abandoned animals, a shelter, NGOs … You choose!
Practical example on Method 6 envelopes
To see in a clearer way how you can implement the 6 envelopes method from now on, we have raised the following example:Suppose you have a monthly income of 1,200 euros and are willing to carry out this savings strategy. The amount you would have to put in each of the envelopes would be:
- Envelope 1 – Expenses = € 660
- Envelope 2 – Long term savings = € 120
- Envelope 3 – Leisure = € 120
- Envelope 4 – Education = € 120
- Envelope 5 – Free finance = € 120
- Envelope 6 – Donations = € 60
Do you see it viable? Feel free to mark your own percentages. If you see that, for example, you want to donate 1 euro per month, it is not necessary that you allocate 5 percent for this task. Or if 120 euros per month for training seems little to you, increase this amount according to your possibilities. No one better than you to manage your finances.
If this saving method has not convinced you, you can try the 52-week challenge, the Kakeibo technique, the 50/20/30 method or the Kakebo method. As you will see, in our blog we like to approach different saving techniques, so that your options are varied and you can choose.