Should You Use Envelope Budgeting in Today’s Digital Age?

Source: Thinkstock
Source: Thinkstock

Many people find that setting a budget, and then putting aside money in separate envelopes for different expenses, is a great way to control spending. This method of budgeting allows people to have the exact cash that they need for expenses, which can prevent accidental overspending. However, envelope budgeting has its downfalls.

According to Money Crashers, although this system has many benefits, if you use envelope budgeting, you have to frequently visit the bank or ATM. This can be difficult if you work during bank business hours; also, it is difficult to make envelope budgeting work unless your entire family is on board. Using cash for envelope budgeting also increases the chance that you might accidentally lose money. But there are now many online sites that allow you to modernize the same principles you use for envelope budgeting, and also allow you to have a more convenient — and often safer — method of budgeting.

When you use envelope budgeting, your entire family needs to participate in your budgeting plans and limits in order for your budget to be successful. If you use all cash, but your spouse uses credit or debit cards, it can be easy to overspend. Using an online tool can help everyone be on the same page, and it also makes it less likely that you will lose money because cash can be misplaced or lost.

In order to have a successful budget when changing from envelope budgeting to utilizing online tools, you still need to start the same way. First, you should determine how much money you need to pay for your regular bills, and then determine how much discretionary money you have each month. Consider how much money you need each month for your rent or mortgage, for transportation, for food and clothing, and so on. You should also set money aside toward an emergency fund, and for your retirement.

Mint allows you to set your own budget based on your spending patterns, which allows you to see how much you are regularly spending on different bills and items. This is similar to envelope budgeting because you can set your budget based on what you regularly spend. You can also plan for one-time expenses, and the site allows you to see how much you will save by cutting back in different categories. You can receive alerts for unusual account charges, so that you know if you are missing money (unlike when you keep your cash in envelopes and suddenly you’re missing $50 dollars).

Another way to stick to your goals and make budgeting easier is to use a site like Simple. Your online bank account will come with several Android apps, as well as a Visa card. With their Safe-to-Spend plan, you will know whether or not you can truly afford to buy something. Forget keeping cash in several different envelopes; this tool subtracts upcoming bills from your balance, so that you know just how much you have to spend. It also subtracts pending transactions and also the goals you set. That way you don’t have to literally see if you have any green left; you will know how much you can spend.

While most people don’t use actual envelopes to keep track of their long-term savings, attempting to keep track of several statements via mail can be difficult. Using a website designed to keep track of your investments is another great way to use digital tools to make your life easier. GnuCash is one site you can try; it allows you to track stocks in addition to expenses. Personal Capital is another choice. The more of your financial information that you can keep track of online, the easier it may be for you to stay on track. Of course there are security risks when using online sites, but most sites prioritize the security of their users.

If you can get your family on board, consider giving your envelope budgeting practice a paperless upgrade. It’s a great (and safe) way to meet your financial goals.
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