Budgeting Money Tip: Cash Envelope System Meets the New World

One past useful budgeting money technique was to set up your saving
and bill paying system using cash envelopes. Basically the cash
envelope system consists of keeping separate envelopes for your
spending categories and populating them with cash from your income
source. Then when a bill comes due or you need to go shopping for
food, you simply pay it from the appropriate envelope.The big
advantage of cash envelopes is that, if you budget money properly, you
will always have the cash to pay a bill when it comes due. No more
worrying about where the money will come from, be it for mortgage or
rent, utilities, car payments, repairs, taxes, discretionary spending,
etc.However, there are many disadvantages of this old technique in
keeping all that cash around. It's cumbersome and simply not safe as
you can easily accumulate hundreds or thousands of dollars in your
cash envelopes. Just imagine the heartbreak and financial setback
should something happen to all that cash.In today's electronic world,
there's a version of the envelope system that can take the old proven
approach and revamp it for the 21st century: Virtual Envelopes.By
Virtual Envelopes, I'm referring to a money budgeting system
consisting of a set of accounts or sub-accounts that you set up at
your banking institution to correspond to your spending and bill
categories. When you deposit money from your income source, you
simply allocate the appropriate dollar amounts to the sub-accounts,
based on your spending plan or budget. It's easy to move money around
your various spending categories or sub-accounts whenever you need to.
When a bill comes due, you simply transfer money from the sub-account
to your checking and then electronically pay the bill. It's easy and
extremely fast once you set it up through your banking institution.To
get started, ask your bank if they can set up sub-accounts underneath
your savings account. There should be no charge for doing this. If
your bank will not provide this service for free, check around for
other financial institutions in your area, including your local credit
union. I've done virtual enveloping for about 30 years through a
couple different credit unions. I've also had a couple colleagues
using this approach. So don't take "sorry, we can't do that" as an
answer from your existing financial institution.Additionally, your
savings, checking and the sub-savings accounts should have
internet-access via your home computer, free of charge. This will
allow you the convenience of budgeting and bill paying from the
comfort of your home.If you are uncomfortable using the internet for
banking purposes, there are just a couple things to be aware of and
you will be fine. First, only use a reputable bank or credit union.
They have the best security in place for all of your data access
requirements. Follow their password guidelines and change your
password regularly. Stay away from "internet-only" banks and
budgeting programs, such as mint.com, MVelopes, etc. I will have a
separate article on internet-only tools later. Setting up virtual
envelopes is easy and creating budgeting money sub-accounts is a
snap!Has the cash envelope system gone the way of the dinosaur? No!
I still recommend it for children. Dividing your child's weekly
earnings into two or three envelopes is a great way to teach them the
value of money. Saving, Spending and Charity or Church are 3 great
starting envelopes for your child's starting cash envelope system.