If you have done any searching about debt-free solutions or are underway on your debt-free journey, you may have come across the envelope system. The system is pretty simple really, you write the name of a spending category on the outside of an envelope (Groceries, Gas, Eating Out, etc.), and then put enough cash in the envelope to pay the expense for the month. The amount needed for the month is determined by your monthly budgeted amount for that expense.
Paper Envelope System
With the traditional paper envelope system, you would have multiple physical paper envelopes in which you would place cash each month. Each envelope, as stated earlier would be earmarked for a specific expense such as groceries, gas, eating out, etc. You would then withdraw cash out of each paycheck based on the budgeted monthly amount for each envelope and then carry the envelopes with you everywhere you go so you can use the cash in each one to pay as you go throughout the month.
No problem and seems simple enough. We did it for a while and found some things to be a little frustrating with it.
This idea would be great if you were one person and could carry the envelopes with you everywhere you went. Unfortunately, it was my wife and me and we never knew when we may need gas or groceries. We ended up using money from other accounts and then transferring it or withdrawing it, etc. It got to be convoluted and confusing.
We also found that we didn’t like carrying that much cash around with us all the time. I know it was probably a mental thing, but if it made my wife anxious, it made me anxious.
The only way to see how much money you had left in each envelope was to count it or keep a record in pen or pencil on the outside. This, in today’s technological world, seems a little dated. I know that the premise behind the physical envelopes is to spend cash and the mental factor is that you spend less with cash than with plastic, but the idea is to also become more structured and practice self-control in your daily life.
Digital Envelope System
It is for the above reasons that my wife and I searched for alternatives to the physical paper envelopes that were such a standard for most debt-free solutions.
The pros to digital envelope systems is that they exist online and you create a separate bank account from which your expenses will be paid. Basically one big envelope that will be divided into sub-envelopes electronically. You will use software that will take your monthly budget and categorize your expenses and allow you to record every transaction for each category, keeping a balance of each envelope for you as you go (as long as you keep valid records).
As long as you have access to the bank account from which the expenses are paid, you can use the digital envelopes, no need to carry the whole packet of paper envelopes around.
But won’t I spend more with a card?
I am so glad you asked that! Hopefully not. That is where learning self-control and discipline come into play. When you start to see the envelopes’ balances going down and you realize you don’t have anymore money to spend for the month, reality sets in.
What do you recommend?
In our search, there was one digital envelope system that we were already using, but never really thought of as an envelope system, EveryDollar.
EveryDollar is the budgeting and envelope system touted daily by Dave Ramsey on his radio show and, don’t get me wrong, is a great piece of software. The free version allows you to create a monthly budget and put your income, expenses, and debts into categories so you can keep track of how much you have spent and still owe on them. It will even keep track of your debt snowball over time.
The drawbacks are that there are really no reporting capabilities. You can see a breakdown of your budget, but necessarily a nice visual representation of your spending or history.
We then looked at an app/website product called GoodBudget. GoodBudget has been touted by a few fellow members of the #DebtFreeJourney and is really a nice straightforward digital envelope system. It allows you to set up multiple envelopes and create transactions for every envelope. It also has reporting capabilities. It allows smaller time periods for envelopes than EveryDollar does just in case you don’t fit into the strictly monthly timeframe.
Overall, we found GoodBudget to be a little more straightforward for the envelope system for us, but EveryDollar is still a great budgeting tool.
I do have to say that we are not affiliated in any way with either product, but are users of both and have experience using them for various purposes. They are both great tools in their own right and you should decide which one works for you.
So do you think paper or digital is best?
For us, digital worked better than paper. For you, it may be different. This could be for many different reasons. You have to take a look at your lifestyle, what you are comfortable with, and if you will have enough discipline to use a debit card within limits.
– You can do it, we believe in you!
Listen to the Podcast about Digital vs. Paper Envelope Systems Here:
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