Learn how to budget and stay out of debt using the envelope system.

If you’ve spent any time looking at websites on how to budget or get out of debt, I’m sure you’ve seen several people who advocate for the cash envelope system.  If you haven’t, let me give you the rundown.

The cash envelope system explained:

envelopes spread out on table

After being paid, you would withdraw the amount of money you have in your budget to spend for the month and then separate the cash into different envelopes for each spending category such as groceries, clothing, cell phone, utilities, etc.

Once all the money is gone from an envelope, the spending stops for that category until the next month.  If you have money left, it can roll into next month’s budget or you can use it to pay down debt.

While this sounds like a nice idea, who really wants to carry around that amount of cash, or even have it in the house?  Also, I don’t know about you, but it doesn’t sound like fun to have to unload all the kids from the car so I can go inside the gas station to pay cash before filling up.

My other question to this system is, Is it really helping you to understand your spending and budget better? I would say it doesn’t, unless you are also placing receipts for your purchases back into the envelopes and tallying them up in a spreadsheet each month.  (FYI, I’ve done that before and it is a pain!!).

Is there another way?

I don’t really want to say that the cash envelope system is an outdated way of managing your money, as it has helped many families reduce their debt, but for me it’s just not convenient.

And there is a better way. I didn’t know there was a name for it, but apparently the method I have been using for a decade now to manage my money is the electronic (digital) envelope system.

picture of 3 major credit card companies

It is done using a credit/debit card and an online budgeting app.

I personally have no problem with using credit cards responsibly (in fact I have 10 different credit cards), but if credit cards are how you got into debt in the first place, then I strongly suggest you use a debit card linked to your checking account instead.


Personal Finance Apps

Being that we are in the digital age, there is an app for almost anything you can think of, and budgeting tools are no exception. Here are a few, I’ve found around the web, along with the one I use .



mint.com logo

I have used Mint money tools since 2008 after my first son was born and I decided to quit my job to go back to college.

We needed to get a grip on our finances as we were moving from a 2-person household bringing in $50k a year to a family of 3 living off of $26k (plus the new expenses of my education).

Mint is owned by Inuit (the company that runs Quickbooks and Turbotax)  and is a free service.

While I appreciate that it continues to offer a free service, I have noticed more and more ads for credit cards and investing companies that clutters the dashboard.


Within the app(or website) you can link bank and credit/loan accounts as well as keep track of any bills using their alert system.  There is also a budget section where you enter your monthly income and set up different budget categories and amounts.

mint.com budget tool

The best thing about Mint is that it automatically imports all transactions from your linked debit or credit cards. The program even categorizes the spending for you into the budget categories you’ve created.
From time to time, I do need to edit the category that has been assigned to.  It then remembers my category the next time a transaction for that vendor is posted.

You can even set up savings goals for things such as vacations or larger future expenses.  I use this feature to help remind me to set aside money for our bi-annual property taxes and homeowners insurance.


goodbudget logo
This online tool is based off the envelope system.  It allows you to set up different envelopes (budgets) and allocate your income across the envelopes.

This program offers both a free and premium plan, with the premium plan costing $6 p/month. The free plan limits the number of envelopes you can have, as well as how many users can share and update the account.

The major downfall for me on Goodbudget, is that all transactions must be entered manually.  If you forget to enter something, the app won’t record it and you might end up over-spending.

You Need A Budget (YNAB)

YNAB is another fee for service personal finance program, charging $6.99 p/month (though they do offer a 34 day free trial).You need a budget homepage

The features are pretty similar to Mint(transactions automatically imported/ budget and goal tracking, syncing across devices). However, I do like the workshops YNAB offers to help users learn more about financial planning and budgeting.

Everything they offer is based off their method of these 4 rules:
1. Give every dollar a job.
2. Save for a rainy day.
3. Roll with the punches.
4. Live on last month’s income.

YNAB is a pretty solid budget tool. I just have a problem paying for something that is supposed to be helping me save money…

If you are new to budgeting, all of this might seem overwhelming, but don’t use that as an excuse to not get a handle on your spending.

I would suggest starting small with 2-3 categories and track your purchases for a couple of months. Most people tend to overspend on groceries and eating out in restaurants so it might be beneficial to start there. Meal planning is one way I keep my grocery spending in check.

How do you keep track of your spending?  Is there another method that you prefer to use?  Please let us know in the comments!

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