The envelope system, as cash is replaced

By | 27th March 2017


The envelope system is a great way of managing the budget, but sadly cash itself has started the journey out of common usage now.

The system works best with actual cash and physical envelopes. You divide up the budget totals for several categories into envelopes and put cash into them.

That way you can easily see what is remaining to spend in that week or month for each category.

It is a system that has worked well for many people over a long period of time, however the use of cash has started to decline – in many cases a forced decline as it is cheaper for the suppliers to not accept it.

Travelling to London, it is difficult to find a parking meter or car park that accepts cash – many are card only. By doing this, the supplier does not have to send someone round to empty the machine and transport the cash to HQ or a bank – saving them money.

A local supermarket has also put in a line of automated cashiers – useless for anyone with cash as they are card only machines. (Other supermarkets still have automated cashiers that accept cash at the moment, but it is a sign of what is to come.)

You can continue to operate the envelope system without cash, but have to do it electronically.

There are a couple of ways to manage virtual envelopes:

1) Separate accounts – this is the best method, having separate actual accounts for each spending category. Many banks will let you open sub accounts, so you would have one for each category and transfer the funds to your main current account before or shortly after spending. That way you can still see what is left for the month in each account ‘envelope’ through one banking app. Alternatively, you could have several accounts with different banks but that would increase the complexity.

2) Virtual accounts – with this, you would use an app or spreadsheet to keep the balances listed while only operating one account. The amounts would only be kept separate through your breaking them down from the total amount in your account. The disadvantage is that you would have to update the balances regularly to make sure that they were correct. Some budgeting apps may be able to do this for you.

While physical cash and envelopes work best, it is still possible to operate the envelope system as cash usage declines.

James McBrearty started his own business from scratch in 2006, to help the self-employed.

He helps people to escape from the corporate world and shares his thoughts here on the changing world of work, technology and personal finances; as well as the occasional travel post.

Over the next 10 years things are going to change significantly. James is a follower of frugality and minimalism; and an advocate of F.I.R.E. to minimise the coming disruption.

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