[Glossary](https://pecuvo.eu/en/glossary/) · Budgeting and saving # Separate accounts (envelope method) **In short:** The separate-accounts ("envelope") method splits money by purpose — bills, reserve, goals, free spending — into separate accounts or envelopes so that it does not get mixed up. **Simply put:** Personal money is not company money, and company money is not project money. In a family, a separate account for shared costs saves arguments. Envelopes use the "mental accounts" described by Richard Thaler: money in different boxes feels different. That helps protect the reserve and the goals, but it can also mislead — a euro is a euro wherever it came from. **Example:** From a net income of €1,500: €900 to "Bills and food", €300 to "Reserve", €150 to "Goal — holiday" and €150 to "Free". When "Free" runs out, it is out until the end of the month. **Watch out:** Saving at 1% interest in one "envelope" while paying 20% on a loan in another is expensive. Once a month, look at all the envelopes together. **Source:** Thaler, "Mental Accounting and Consumer Choice", Marketing Science, 1985 — https://doi.org/10.1287/mksc.4.3.199 ## In depth in the modules - [Module 8](https://pecuvo.eu/en/modules/the-iron-principles-of-cash-flow/) - [Module 4](https://pecuvo.eu/en/modules/the-mechanics-of-money/) - [Module 14](https://pecuvo.eu/en/modules/the-psychology-of-money/) ## Related terms - [Mental accounting](https://pecuvo.eu/en/glossary/mental-accounting/) - [Personal budget](https://pecuvo.eu/en/glossary/personal-budget/) - [Financial goal](https://pecuvo.eu/en/glossary/financial-goal/) - [Emergency fund](https://pecuvo.eu/en/glossary/emergency-fund/) - [Current (payment) account](https://pecuvo.eu/en/glossary/current-account/)