Have you ever heard of envelope budgeting? It’s a simple system that helps you visualize and stick to a budget.
The envelope system relies on a traditional household budget — your income and expenses like rent/mortgage, bills and groceries, plus spending money and savings. But it goes beyond the spreadsheet: You actually label an envelope for each facet of your budget and divvy up cash among them.
So as money comes in, you direct it to each portion of your budget. Instead of working with one big total, you can use envelope budgeting to build mini-savings toward each necessity every month.
It’s a smart system for someone like me, who works much better with the tangible than the intangible.
There’s just one problem: I barely work with cash anymore.
How to Use Mvelopes to Stick to a Budget
My paycheck comes twice a month via direct deposit. Freelance clients pay me via PayPal. I use one online checking account, and my main bank doesn’t even have an ATM in this state.
It would be ridiculous to get my hands on cash to try to use this budgeting system.
Instead, I tried Mvelopes, a budgeting app inspired by the envelope system.
Like its physical counterpart, the Mvelopes app partitions my money across categories. But it doesn’t require any cash on hand — everything happens digitally.
Before you think otherwise, Mvelopes didn’t ask us to talk about its app. We just love to test new financial tools, and I want to share my experience with you!
How Does Mvelopes Work?
Mvelopes connects to my bank account to keep track of income and expenses. I can use the app to set a monthly budget for all of my expenses, plus I can also set savings goals.
Money goes toward each of these expenses and goals, and Mvelopes tells me what’s leftover — my spending money!
This system makes sticking to a budget easy for me.
Instead of looking at a full bank account balance and subtracting upcoming expenses to determine how much fun money I have left over, I can just look at my Income Cash Pool. That’s where extra money lives after all the “envelopes” are funded.
Because it’s connected to my bank account, Mvelopes automatically tracks my income and expenditures. I like that it gives me a full overview, and the option to include multiple accounts lets you see your full household budget in one place.
Unfortunately, the app doesn’t automatically partition my spending, a feature that’d make it much more valuable.
I usually prefer “set it and forget it” tools to manage my finances. In this app, I have to manually assign my income and expenditures to my various envelopes, which is more hands-on than I prefer.
I’d love to see a feature that automatically funds my envelopes when each paycheck hits my balance and assigns purchases to envelopes. But if you prefer a more hands-on tool and direct control, this could be a smart budgeting tool for you.
How to Use Mvelopes
If you want to try Mvelopes to manage your budget, here’s the nitty gritty:
1. Sign up online at www.mvelopes.com.
2. Add your accounts.
I only connected my main checking account, but you can add any accounts you think would be useful, including your spouse’s. You’ll need your online banking username, password and possibly an answer to a security question.
3. Define your income.
I added the date and amount of my fixed paychecks, but left off my freelance income for now.
You can also add variable income month by month, if your income isn’t consistent.
4. Create a budget.
Creating your budget in Mvelopes is similar to creating any other budget.
You’ll create envelopes for what you spend money on and assign a monthly cost to each.
I have envelopes for my fixed monthly expenses, including my rent, car insurance, car payment, utilities and phone bill. I also budget for gas, groceries and household essentials I know cost about the same each month.
You can also create envelopes for non-necessities, like entertainment and recreational shopping (I think some people call it “retail therapy…”)
Mvelopes also reminds you to budget for larger periodic expenses, like car registration, holiday gifts, buying a new car and vacations. You can set aside a little for each every month, so you’re prepared when they come up.
5. Fund your envelopes.
Next you’ll fund your envelopes, which means assigning part of your balance to cover each expense. You’ll do this with each paycheck to distribute your income as needed across your anticipated expenses.
When you “fund” envelopes, no money is actually being moved around, or in or out of your bank account. Mvelopes just works with your balance to help you keep track of your digital money the way you’d do with hard cash.
6. Get an easy snapshot of your budget.
When you want to know what you have left to spend, you can check the Mvelopes app on your phone or your account online.
The amount left in your Income Cash Pool is money that hasn’t been allocated to other envelopes. Use this for extra spending this month — or allocate it to envelopes to get ahead for next month!
This should help keep your spending in check.
You’ll have to spend some time each day or week assigning your purchases to various envelopes. For example, Mvelopes will track a purchase you make at the grocery store, but you’ll have to assign that purchase to your “Groceries” envelope, so the total is deducted from that portion of your budget.
If you’ve already used the envelope system to keep track of your cash, and you’re looking for a digital companion, this is a perfect option.
Or if you like to keep a close eye on your budget rather than automate it, this could also be a smart solution.
I think I’ll look into other budgeting apps for now, because I prefer automation. I’ll be sure to let you know what I learn!
Update 8/31/16: After this post was published, a representative from Mvelopes reached out to add the following:
Your Turn: What’s your favorite budgeting app?
Dana Sitar (@danasitar) is a staff writer at The Penny Hoarder. She’s written for Huffington Post, Entrepreneur.com, Writer’s Digest and more, attempting humor wherever it’s allowed (and sometimes where it’s not).