In part 1 of this post, I gave an overview to the envelope budgeting method. In this post, I present a few ways to implement the essence of that method, in a way more suited to the modern world.
The main problem with envelope budgeting in the modern world is that we have become a cashless society. Imagine trying to keep track of expenses, credit cards, online bill payments, and the many other ways we deal with money by using a cash based system.
Method 1: Envelopes with Virtual Cash
In this implementation, everything is the same except that you write on the envelopes as you “deposit” money into them and “spend” money out of them. By writing it down, you don’t have to actually put cash into the envelopes. So if the traditional envelope method would have put $100 in your grocery envelope, you just add $100 to the total written on the grocery envelope. If you spend $75 at the grocery store, you would subtract $75 from the total written on the grocery envelope. Ideally, you would check how much virtual cash was in each envelope before making purchases in each category.
The trouble with this method is that if you forget to capture an expense, you may overspend a category without realizing it. It’s the same problem that people who manually balance their checkbook face. Also, the total amount isn’t tied back into your bank account, so it’s what’s known as an open loop system i.e. there’s no feedback to double check your numbers. To fix these problems with balancing our checkbooks we now use online banking and financial software which can be used to implement envelope budgeting as well.
Method 2: Personal Financial Software
A combination of personal financial software, such as Intuit’s Quicken or Microsoft Money, can really help you get a grip on your finances. They can do much more than implement a budget and integrate well with online banking and investment accounts. For all of their many features, one thing they are not is simple. For someone looking to implement a simple envelope budget they may be overkill. Having so many features may actually discourage their use because these tools can seem so complex. I use this type of software because I’m looking to do a lot more than just budgeting. Depending on your needs, it may be right for you as well. If your just starting out, you may want a simpler method first and can then graduate to one of these tools once you have the basics of a simple method down.
Method 3: Mvelopes
For anyone looking to implement an envelope budgeting system in the modern world, you couldn’t ask for a better tool than Mvelopes. It’s the perfect balance of a simple budgeting system and the convenience of more complex financial software. Here’s how it works:
After creating an account with Mvelopes (details on how to do that below), you create all of your virtual envelopes on their website. Then you link in to all of your online accounts: bank, investment, credit card, etc. The website is able to recognize when your paycheck is deposited in your bank account. It then knows how much is available to split between your envelopes. As you make purchases, those transactions are also recognized and removed from the appropriate envelope. So if you use your debit card at the grocery store, Mvelopes would take what you spend out of your grocery envelope.
Using Mvelopes has all of the benefits of the envelope budgeting method, without the downside of other implementations: it isn’t cash based, in isn’t overly complicated, and its automatic so you won’t miss transactions.
You can even create more advanced envelopes such as the following: You could create a credit card envelope. Then, if you made a grocery purchase with your credit card, money would be taken from your grocery envelope and placed into your credit card envelope. Then, when your credit card bill arrived, you would already have all of the money needed to pay it off in your credit card envelope. Obviously, paying off your credit card in full is going to save a lot of money in interest and fees.
Mvelopes advertises that their members recover as much as 10% of their income simply be taking control of there finances and tracking where the money is going. By uncovering hidden spending and making saving goals part of the plan, it’s easy to see how this is possible.
The downside of Mvelopes is that you have to pay a small monthly fee for it. This ranges between $7.90 and $13.20 per month depending on how long you sign up for. The good news is that you can try Mvelopes FREE for 30 days to see all that it has to offer. If you’re interested in the free trial, click this referral link to enroll.
I’ve really been impressed with what I’ve seen from Mvelopes. It’s the perfect combination of a simplified budgeting system and a powerful personal finance management tool. It may be the ultimate implementation of the envelope budgeting method for the modern world in which we live.
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