Y’all, I have finally found a budgeting system that works for us. I started calling it the “digital envelope budgeting” system.
Come to find out, other people have been doing this for a while now and I just didn’t know it.
Settling on this budgeting method was absolutely instrumental in us being able to pay off $17k of debt that last year.
I want to dive into what is the digital envelope method and why it’s our method of choice.
What is budgeting?
We gotta go back to the basics real quick!
Budgeting is the formal process of organizing your income and your expenses. With a budget, you are creating a spending plan for your money,
It’s a plan. And you can plan to spend your money however you want to!
“Budgeting isn’t about depriving yourself; it’s about taking control of your money. Making a budget shouldn’t feel like a punishment. Remember, it’s a plan for all of your money — that includes money for fun stuff, too.” —Nerdwallet
We definitely budget for fun stuff and because we do, we don’t feel guilty or stressed that we may be overspending and/or dipping into funds that should be used for necessary expenses.
This allows us to enjoy our money while also working towards our money goals, which currently is building an emergency fund.
Here are a few different popular budgeting methods (click the name to learn more):
One thing I’d like to point out is that it’s taken me many years to get to this point of nailing down a budgeting method that works for me and us as a couple.
I think sometimes it can seem like you just pick a budgeting method, you start using it, and then the rest is history!
That may be the case for some, but for others, there may be some trial and error and that is OK!
It can be a really empowering feeling when you have found a system that is useful but know that it may take some time.
Now, let’s get into the digital envelope system!
What is the digital envelope budgeting system?
To understand what the digital envelope system is, you have to understand what the regular envelope budgeting system or “cash-stuffing” method is.
With this method, you have a specific envelope for each category in your budget and you put the amount of cash in the envelope you have designated for that category.
How much you put in the envelope will depend on your budget. And once the money in the envelope is gone, you’re done spending money for that category!
How this translates digitally is we have multiple checking accounts and each account is designated for a separate spending category.
We use the zero-based budget system (aka budget every dollar) for our money plan.
For our entire money management system we have 4 checking accounts and 2 savings accounts (short-term and emergency fund).
Here’s a breakdown of all our accounts and what we use them for:
Bills account: I have all of our bills on auto payout out of this account.
Food and miscellaneous account: This is our grocery budget and miscellaneous household items account. If we eat out together or order in, that typically comes out of this account, too.
Two personal spending accounts: Then hubby and I each have our own spending accounts. This is money we can spend on whatever we want without consulting each other (e.g. activities with friends, eating out, plants (me lol), etc.)
Short-term savings: Costco trips, yearly expenses like Amazon Prime or Costco membership, car registration, or unique experiences like a basketball game or concert.
Long-term savings: Specifically for our emergency fund.
Here’s a visual of our accounts — not pictured is our HYSA at Ally where we keep our emergency fund.
My checks are deposited into the bills account and then I have automatic transfers set up every time I get paid so money is transferred from the bills account to fund the other accounts.
It did take a little bit of planning to figure out how much money from each paycheck needed to be in each account, but once I did that, things flow nicely with little effort on my part.
Why I love the digital envelope budgeting system
- Don’t have to deal with cash
- Cash is inconvenient to me and with this method, I don’t have to manage physical envelopes and loose change. And since both of us go grocery shopping/pick up household items, it’s nice that we both have easy access to the funds.
- Balances are easily visible
- When I am curious about how much money I have left in whatever category, I can quickly log into my bank account and see the number. I am a visual person, so I really enjoy that aspect of it.
- Auto expense deduction
- I don’t have to deal with receipts or manually enter my expenses in an app or Excel sheet to see what my remaining balance for a certain category is. I have tried budgeting methods where you have to update the budget to tell you how much you have left in whatever category. I was finding myself getting behind on adding multiple transactions, which caused stress and that’s not what I want for my budget.
- Easy auditing
- If I am curious, I can go into one account and add up all that I have spent in that certain category. It’s convenient to have the transactions separate.
- Low maintenance
- I would call myself a lazy budgeter and this is the most low-maintenance method I have found thus far. Once you decide how much you want/need in each account, there is not much more to maintain. You just have to make sure you stay within your budget so as to not overdraft! Also, since we have our finances completely merged, it’s most convenient for us to both have access to all accounts.
If you’re interested in trying this method for yourself, most banks allow you to open multiple checking accounts, so just talk to your bank about opening one or two more checking accounts, and label them as you please!
Many allow you to even open additional ones online without having to go in person.
If having 4 checking accounts seems stressful, I know people who only have two, and it works for them. Start there and see how that goes. That might be all you need.
Budgeting can be intimidating and like I said above, there may be a few failures before you find a method that works for you and that’s OK. Just keep going.
One thing that has helped me in this journey has been finding people in my circle that I can talk about money and budgeting with.
It’s helpful to hear what other people are doing and maybe you can learn a thing or two from someone else.
You may also find that budgeting just doesn’t work for your situation and that’s OK too.
There’s a great article from Healthy Rich titled What is budget culture? How this sneaky paradigm hurts everyone, where they talk about budget culture and why budgeting doesn’t work.
I love to hear and share different perspectives in this space.
Either way, good luck to you on your money journey!
What are your thoughts on budgeting? Do you have a specific method you use or app? Let me know in the comments below!