There are many ways to save money, and many budgeting methods. One of the simplest ways to manage your money is using an envelope system to divide your take home pay into various categories. Starting with your fixed expenses like rent, car payment, insurance payments, credit card minimums, loan payments, and phone bills. The idea is to put the correct amount in each envelope and divide the rest between categories that can vary each month, like gas, groceries, entertainment, and utilities. Once an envelope is empty, you have met your budget for that time period, and you do not spend any more money in that category. While it is extremely rewarding to take a pile of cash and divvy it up between envelopes, you can use this method without stuffing envelopes with dollars. Here’s how to use the envelope system without cash.

Using cards vs using cash. Why not use cash? For many of us, cash has become something we rarely use except for those few situations where a debit or credit card simply won’t do, such as when you need to vacuum out your car and the machine only takes quarters, or you have to use a coin operated washing machine or dryer. Most transactions are conducted using a card of some sort, or an online payment system. We pay our bills online, make purchases online, and do our bank transactions online. Some people aren’t comfortable carrying around a lot of cash, and for some it’s not as convenient as using a debit card. Imagine if you forget your grocery envelope at home and find yourself at the checkout counter with 10 bags of groceries you need to pay for, and no cash or debit card. If you’re disciplined enough to use a rewards card and pay the balance off completely each month, you can take advantage of travel rewards or cash back rewards. In this case, using physical cash might not make sense for you.

How to use the envelope system without cash. You will still create a budget with categories to manage your spending. After you pay your fixed bills, instead of getting the balance of your paycheck in cash for your envelopes, you employ cashless envelope trackers to record your spending. It works the same as the cash envelope method, but you need to diligently track your spending and have a system in place to keep yourself from spending more than allocated for any category. Here’s how to use the cashless envelope system:

• Always start with a budget. You have no way of knowing where your money is going if you don’t have a framework to help you see where it is supposed to go.
• Print trackers and keep them with you. Write the category and budgeted amount at the top of your cashless tracker “envelope”.
• Start using your trackers the same day you pay your bills.
• With every purchase, write it down on your tracker. Keep a running balance so you know when that “envelope” is empty.
• Once you reach your spending limit in a category, you have no more money in that virtual envelope, just as if you were using cash. And no, you can’t move funds from one category to another to accommodate overspending.
• If you are always running out of money for the same categories or have extra money left in others, it may be time to adjust your budget.
• Do this every time you get paid.

If you have been thinking about trying the envelope budgeting system but aren’t comfortable using cash, this is a great way to control your spending and see where you’ve been sabotaging your budget. Just remember it’s vital to track your spending so you can see at the end of every pay period where those unexpected expenses crept in, and if you need to adjust a spending category to accommodate them.