cash envelopes in the digital age

The envelope budgeting system is one of the best-known ways for people to budget. It’s often the first method that people learn. Moreover, a lot of people come back to it after trying other options. It’s simple, straightforward, and easily helps you stay on track. However, does it really make sense to use cash envelopes in the digital age?

What Is The Envelope Budgeting System?

If you’re not familiar with the envelope budgeting system, it’s pretty simple. First, you create your budget based on common spending categories. For example, your categories might include rent, utilities, car payment, groceries, dining out, and entertainment. 

Next, you create an envelope for each of those categories. You put the specific amount of cash that you’ve budgeted for the month into each envelope. For example, if your monthly food budget is $500, then you put $500 cash in the envelope marked for food.

When it comes time to make a purchase, you choose the assigned envelope. Therefore, you would take the food envelope to the grocery store. The idea is that you can see throughout the month how close you are to using up your budget. Then you can adjust accordingly. 

Note that many people also add a “miscellaneous” or “emergency funds” envelope. This way, if you run out of cash, you still have an option that’s within your budget.

Pros and Cons of the Envelope Budgeting System

Many people love this old-fashioned but highly efficient budgeting system. Of course, like with any other system, it has pros and cons.

For example, one drawback is that you essentially need to be a month ahead on expenses for it to work out easily. You allot all of your monthly budget at once at the beginning of the month. Therefore, you need that much cash on hand to make it work.

On the other hand, using cash assigned to specific categories can really help a lot of people avoid overspending and impose purchases. It’s all too easy to swipe a credit card. When you look into your grocery budget envelope and see that you only have a little bit left for the month, you might feel more inclined to put away that bottle of wine or extra bag of chips instead of blowing your budget.

Using Cash Envelopes in the Digital Age

Some of the pros and cons are exacerbated when we talk about using cash envelopes in the digital age. For example, you might enjoy paying for a lot of your expenses through automated payment systems. Personally, I use automatic bill pay for everything I’m able to including my rent. One solution is to subtract out digital payments before implementing the cash envelopes for everything else.

Another issue is that you might want to pay with rewards credit cards. Honestly, I don’t pay cash for almost anything in life. I put everything on a cash back rewards credit card. As long as I pay that off each month, it’s a benefit to me to do it this way. This doesn’t work well with cash envelopes in the digital age.

Additionally, many of us use apps to pay one another these days. For example, I pay the dog’s walkers through Venmo. Sure, I could make a monthly “dog’s walkers” cash envelope. However, that seems to me like an extra step that doesn’t make sense for me. This depends a lot on personality, preferences, and how much you use digital money. I’m able to budget digitally for that expense so I don’t feel the need to use the envelope budgeting system.

That said, there are certain areas of life where I’d benefit from it. I spend a ridiculous amount on groceries and dining out. If I used the cash envelope system, then I’d easily be able to see whether or not I have enough money in the envelope to stay within budget. That said, I’m ordering through an app, which means I have to pay with a credit card. So the only way that this works is to create a cash envelope then perhaps deposit that cash back into my bank each time that I use it.

Alternatives to Using Cash Envelopes in the Digital Age

Obviously, I’m not the first person to think about whether or not it makes sense to continue using cash envelopes in the digital age. Lots of people have pondered how to make this tried-and-true system work for people today. One of the most popular solutions is to use a digital cash envelopes option – a website or more commonly, an app.

For example, the Qube app is a solution to using cash envelopes in the digital age. Essentially you set up a main Qube account that has all of your money. Then each month you go in and assign budgets to smaller Qube categories. It’s effectively a digital equivalent to physical envelopes. Then, you pay with your Qube card, using the app to designate which category the money comes out of. For example, you use your Qube card at the grocery store, telling the app to pay with the grocery subcategory budget that you’ve set up. 

Goodbudget is another digital budgeting envelope tool. It works similarly to Qube. This one has both free and paid versions. The free version allows you to create up to ten spending categories or “envelopes.” This is sufficient for most people’s personal finances.

Mvelopes is a similar app alternative to using cash envelopes in the digital age. This app, however, focuses specifically on helping you create a category-based budgeting plan to pay down your debt. Note that this app comes with a fee after the first month free trial. Therefore, you have to consider whether you’ll get the benefits of the digital tool that make it worth paying for. The benefit is that you can link many different accounts. The tool tracks all of your spending and assists you with budgeting. So, instead of starting from scratch figuring out how much money goes into each “envelope,” the digital tool helps you figure that out.

Do you think there are good reasons to still use cash envelopes in the digital age?

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