When it comes to managing family finances, it seems like there are a million different opinions and methods out there.
From budgeting everything down to the penny and NEVER having any fun money to a “que sera sera,” where you throw your hands in the air and just do whatever you want… the options are endless.
And while you could probably guess, we are firm believers in setting a good budget and telling our money where to go.
The fact of the matter is, the age old “envelope” system doesn’t seem to work super well for a lot of families in the digital age. Some families NEVER manage cash anymore! So to try to have a solely cash money budgeting system wouldn’t be sustainable.
However, the fact of the matter is, the envelope system made hugely popular by Dave Ramsey is remarkably effective (Dave Ramsey has helped millions of people gain financial freedom over the past 30 years).
The magic of the envelope system lies partly in the fact that you can physically SEE (and therefore FEEL the pain) of spending the cash assigned to each category.
4 Ideas for Using the Envelope System in a Digital Age
Idea #1: Every Dollar by Dave Ramsey
Every Dollar is the budgeting app created by Ramsey Solutions. It is cool because it gives budgeting tips that line up with Dave Ramsey’s method. If you are a Financial Peace University Grad (or want to be)or a “Dave Ramsey kid” then this one is a great fit for you
Pros of the Every Dollar App:
Lines Up With Dave Ramsey Methods Already…
- Kinda fun to “move” transactions into the proper category
- Easy to use overall
- Easy to use with your spouse
- Syncs with (most) banks
- Automatically shows you your spending percentages per category
Cons of the Every Dollar App:
- It’s not free. At the time of this writing, it is $79.99 per year for the premium version
- To run a business budget and a personal budget for your family finances, you need 2 separate accounts, which equals 2 separate expenses
- Don’t feel the same amount of pain as when you spend cash
Idea #2: Hyper-Vigilance With a Spreadsheet
If you enjoy tracking numbers and checking your accounts daily, this one might work great for you. Full confession, even though I am a Ramsey Pro, I have (and continue to) use a spreadsheet to track our personal spending. I set one up years ago and keep using it. It works for us!
Pros of Using a Spread Sheet:
- Free ‘99! If you have access to a Google account or Microsoft Excel, you can set up a budget spreadsheet and track all of your expenses
- Can purchase spreadsheet templates if you don’t want to build your own (Speaking of, have you seen our Pay Yourself Calculator? It’s an EASY yes for small business owners)
- You can make it as simple or as complex as YOU want it to be!
- Easy to access from any device
- Easy to use with your spouse; manage the family finances as a team
Cons of Using a Spread Sheet:
- Needs frequent babysitting
- Can be tricky for someone who doesn’t love spreadsheets
- No bank syncing options
- Easy to miss transactions
Idea #3: Hybrid- Physical Envelopes and Digital Payments
Well what if you really NEED to feel the pain of spending cash, but some of your spending HAS to happen digitally? We get that too.
There IS something to be said for the “pain” you feel when you see cash leave your hand. It makes the spending more real, more tangible, and in lots of ways, easier to control.
However, we live in a digital age where 30% of people don’t even carry cash daily. So what’s a family to do if they need a little bit of both digital and cash tracking?
Keep your digital expenses to a minimum and try to make your “discretionary” purchases- or areas that you tend to overspend- cash only.
For example, your mortgage is generally a fixed expense. It’s going to be the same amount every month.
So it is easy to budget that amount and have it automatically withdrawn from your bank account each month.
However, maybe the area where you tend to overspend is at coffee shops and restaurants?
Consider making those categories cash only. Revert back to the classic envelope system and keep envelopes for those categories. When the money runs out in your “Dutch Bros” envelope, there are no more stops that month.
Pros of the Hybrid Envelope Method:
- Can be easily customized to what fits your family finances the best
- Allows you to feel the pain of spending money
- Can physically SEE what is left in each category
- Can sometimes save money by paying cash!
Cons of the Hybrid Envelope Method:
- Can be a little messy
- Must physically go to the bank or ATM each month or even each paycheck
- Cash can get lost
Idea #4: Use One Bank Account Per Category
This is one that we have not *personally* tried, but it DOES make logical sense and lines up with a lot of the philosophies that we like from Mike Mackaoawitz’s book Profit First.
With this method, you would have 1 bank account that all your income gets deposited into, and then you move money into individual bank accounts for each category. So instead of having physical envelopes, each account has its own “digital” envelopes.
Allow us to elaborate:
Husband’s and wife’s paychecks are auto-deposited into account 1.
Then, at the beginning of each month when you sit down to do a budget together, you move $3000 into the account for “housing expenses” (account 2), $2,000 into the grocery account, $500 into the “eating out” account, $200 into the gifts and special occasions account, $500 each into the auto repair and home repair accounts, and $1000 into your savings account.
Then, when you go to order your Walmart pickup order, you can easily see that you have $546 left to spend on that debit card.
*In this method, you may still need to do some manual tracking with a spreadsheet.
Pros of Using One Bank Account Per Category:
- business subscriptions
- fitness apps
- meditation apps
- meal planning tools
- habit trackers
Cons of Using One Bank Account Per Category:
- Rather messy to set up
- Easy to use the wrong card and mess up your system
- Still have to do some manual tracking while you wait for charges to hit their respective accounts
Why The Envelope Philosophy Works for Managing Family Finances
The envelope philosophy – whether cash or digital – works because it gives every dollar a purpose, and that’s what ultimately helps you break the cycle of living paycheck to paycheck.
Regardless of which method works for you, the important thing is that you SET a budget at the beginning of each month and stick to it!
Study after study shows that when you pre-plan and track your spending, you are better off financially, create more control, less stress, and can finally get ahead of your finances.
If you, or a friend or family member, are looking for an accountant who loves and USES the Ramsey zero dollar budgeting system, and has for years, reach out here to schedule a free consultation.
