Before paying down debt, opening a savings account or contributing to a 401(k), the first step to wrangling in finances and building wealth is always starting a budget.
And one of the easiest and most successful budgeting methods is the envelop system.
What is the Envelope System?
Any good budget should be divided into categories: groceries, dining, shopping, etc. If a budgeter is only focusing on one monthly number, it’s easy for one or more category to get out of hand.
The envelope system assigns one envelope to each month with a limited amount of cash in each. For example, if you want to spend $200 or less on groceries, the grocery envelope will have $200 cash inside.
Every envelope system works a little differently, but the golden rule is this: once an envelope is empty, you cannot substitute cash from a different envelope.
This means no pulling from the gas budget so you can spend a little more on shopping. These individual envelopes add up to a total monthly budget, making it a great way to stay at or even under the total amount each month.
How Can I Make It Digital?
The envelope system is perfect for keeping a budget honest, but most people aren’t using cash as a primary currency in 2017.
As long as they’re used responsibly and the balance is paid in full each month, credit and debt cards are the best for daily spending. But how do we make paper envelopes into a digital system?
- Excel or Google Spreadsheet.Many people need nothing more than a data spreadsheet to track every dime that comes in and goes out. Even if you’ve never used Google Sheets or Excel, learning how to make a digital budget with this tool is easy and only requires a short tutorial.
- You Need a Budget.As the name implies, YNAB is a digital system for your budgeting needs and requires only a smartphone with a secure mobile pay option, like the Apple iPhone 6s, to make it run smoothly. Split your budget into categories, set limits and enter in purchases via the smartphone app to track spending. For just $50 per year, this is the easiest way to use a digital envelope system.
- com.If shelling out $50 to start saving money seems crazy, there is a free option with Mint.com. The secure website works like YNAB but connects with your credit card and bank accounts to automatically upload transactions and organize them. It takes a bit of correcting at first, but over time you could have a completely hands-off budget using Mint.
Back to Basics
The physical act of taking cash from an envelope takes away the tempting to spend.
So if you are the type of person who can’t get credit card spending under control, it’s perfectly fine to go old school with the envelope method.
In fact, you can still track the numbers via a spreadsheet or YNAB while dealing exclusively with cash as you spend.
Then, when finances are under control, switch to credit or debit cards and keep your digital system to continue budgeting.