The envelope method is an old favorite when it comes to budgeting, but in today’s digital society it can be hard to use exclusively. I primarily pay my bills online and I rarely carry much cash on me so while I love the straightforward nature of the envelope method, it just isn’t realistic for me.
I’ve been trying to figure out how to digitize the envelope method so that I could clarify my budget a bit and make it easier to see when I was over in one spending category or another but I just wasn’t happy with any of the solutions I had come up with. I have heard that some banks allow for sub-accounts which makes it easier to allocate money to different categories but I haven’t been able to verify that anywhere yet.
I was unexpectedly thrilled when American Express introduced me to their new fee-free prepaid credit card because I’m not normally a fan of credit cards but it opens up so many possibilities for creating a functional digital envelope system for your monthly budget or special events like trips or holiday spending.
List your Expenses
The first step for any budget is to understand what you are already spending. This can change periodically so I try and reevaluate it every few months. For me, this is a draining process so I do it in small pieces. Try breaking the task up into 15 minute increments until you’re done.
You’ll probably notice that one category is harder to control that the others. This may not be because you are particularly prone to overspending in this category but that it’s difficult to track what you are actually spending.
For me, this tends to be my grocery budget, for you, it may be entertainment. Whatever it is, create a budget you think is reasonable and then try something new . . .
Create a Digital Envelope
Now that you have a budget for the problem-spending category, you need to find a way to separate out the money you’ve budgeted for it for the month.
The new prepaid card from American Express has absolutely no fees so it’s a great solution. I’m very anti credit cards (it’s been about 5 years since I’ve used any credit card at all) but I’m a fan of this option.
Sign up for the card online. Once your card arrives (mine came in about 3 days), transfer the amount you have budgeted for your problem category for the month onto the card.
The American Express prepaid card will not let you go overdrawn (and you won’t be charged any fees once you spend what’s one the card) so you can only spend what you’ve budgeted.
If you have a balance at the end of the month, you can either increase your budget for the next month or transfer a smaller amount to the card and put the remainder of the budget in savings.
Now you’ll be aware of what you’re spending in that category and once the card is empty for the month you’ll know it’s time to stop spending (or cut back in another area).
What method do you use to balance your budget each month?
Disclosure: American Express sponsored my trip to BlogHer, however all opinions expressed are my own.