The Free Digital Envelope System

I think it is about time your grandmother, Larry Burkett and Dave Ramsey migrate into the twenty-first century. Ah, the old tried and true envelope system. The simple idea of budgeting by putting your cash into actual envelopes and, gasp, when the money runs out the spending stops (SNL) . With the introduction of connected smart phones and instant access to online banking, the concepts of envelope style cash flow planning are now conveniently available for free to all Americans.

So, with all the ways to keep up with transaction and financial systems, why would anyone use envelopes? I believe the beauty of the envelope system lies in its simplicity and transparency. The system allows you to make one set of decisions at the beginning of the month and then you don’t have to keep receipts or track of anything; simply spend the money you have in your envelope. If you run out, too bad, plan better for next month. Or at least have a conversation with yourself or spouse and figure out where the money you need will come from. The second most useful idea of using envelopes is the fact that, especially if you share a budget with others, it is quite easy to see if there is money left for something. You don’t have to keep track of every dime you spend, but you can quickly open up an envelope and see if you have money to go out for dinner at the end of the month. As long as you can agree on the amount that goes into the envelopes, you don’t have to worry about overspending.

However, there are a few drawbacks to the traditional system. My wife and I used literal paper envelopes for the first few years of our marriage (and still do for entertainment and groceries). It actually really helped get a complete, tangible grasp on exactly how we were spending. Occasionally, it did become annoying or inconvenient. We preferred to simply carry a debit card around instead of hundreds of dollars in cash. Also, it became arduous if we were away from each other because sharing a set of envelopes can be difficult. Even little things like buying gas (not at the pump) or the hassle of forgetting an envelope were minor inconveniences. The great news is that all of these issues are alleviated with the modern day digital envelope system.

There are a lot of fancy online systems out there that will provide ornate apps and a pleasant interface. Companies like Mvelopes and NeoBudget are great, however, what must be said is that there is a better, free alternative that my wife and I have been using for several years! I might even go as far to say they are better than free because they pay you interest and have nice signup bonuses even if you are just testing them out. We currently use a combination of and Capital One 360 and two old fashion real envelopes.

How it works:
The first step almost seems too obvious but I’ll go ahead and talk about it. The first step is deciding how you want to spend your money. When you are first developing your spending muscles, deciding what you are going to spend before the month can be paradigm changing for most. The vast majority of people look back, if they even look at all, and try and figure out where their money went. By just deciding where you actually want your money to go is a great place to start. Once you know how much you want to spend for every category the logistics are not complicated.

Again I’ll extoll the simple but wonderful concepts of sub-accounts that Capital One 360 (Formerly ING Direct) allows you to have. This allows you to allocate large categories you would like to save for long term items or sinking fund accounts for big ticket purchases like your next car or annual insurance premiums. These help keep money separate and get rid of the temptation of having a huge pile of cash right after a paycheck.

360 Savings

We get our paychecks deposited into our Capital One 360 Checking Account and we set up automatic transfers for each of the savings sub-accounts (like digital online envelopes for new cars, giving, annual insurance, and vacations). The rest of the money remains in the checking account and is allocated using

mint is a free resource that has been developed2013-06-11 14.24.15 by the makers of Quicken. It is a tool that automatically syncs with your bank account and categorizes all the transactions you make. At the beginning of the month Mint lets you choose how much you would like to spend in each category. Every time you make a purchase with your debit or credit card it automatically deducts that amount from the category. This can be seen on your smart phone app or any web browser. The beauty of this process for me is that I can check and see from my phone, updated in real time, exactly how much money we have left in each category.

If you have ever thought about trying the envelope system, now is the time. It is a cool system that, once in place, manages itself and allows for simple tracking over time. It makes you much more aware if you, or your spouse, have a tendency to overspend. Even for individuals who don’t like updating or checking the apps you can set email alerts to remind you when you are about to run out in a category.

I have enjoyed bringing your grandmother’s financial concepts into the modern era. It’s finally free and easy to try out. If you have any questions or use a similar system let me know in the comments.

29 thoughts on “The Free Digital Envelope System

  1. We use physical envelopes as it works best for us. I used mint for a while, but It didn’t have all the features I wanted for tracking tax amounts and investments so i ended up falling back on MS Money (which by the way is free now as well – seach for microsoft money sunset edition), but doesn’t auto download from the web. Still waiting for MINT to get some of the features I am missing or for someone else to really step in (Quicken is in decline so not switching there).

  2. We still keep two physical envelopes also. I used MS Money years ago but I haven’t tested it out in a while. I think what keeps bringing us back to the stuff is the automation of it and the ease for both my wife and I to keep on the same page (without having to enter in any transactions). I have never tracked any of the tax amounts but that sounds interesting.

  3. So what are your thoughts on the lost interest because you have your savings accounts separated? I have been tempted to do that in my 360 account, but then I realize that by not having the money pooled together, I lose out on hundreds in interest earned over the year. For psychological reasons, I’d rather have the separate savings categories though.

    • That is an interesting thought. If I understand your concerns correctly, dividing the money among several different savings accounts, instead of one, should yield the exact same return. $100 in 10 accounts vs $1000 in one account both earn $100 in interest @10% a year. (100 x 10% = $10 -> 10 x $10 = $100). Simply having smaller amounts in each account shouldn’t affect the return if the rates are the same across all accounts.

      • And that’s why I’m not an economist. Already opened a new account for our next home improvement project!

  4. I use the envelope method mainly on the “trouble spots” areas where extra income magically disappears. Automatic bill pay takes care of the rest

    • I think that is pretty useful for a lot of people, myself included. For us, groceries and entertainment can both be areas where we spend a lot of money so we are intentional there.

  5. Great post. This is basically what my wife and I have been doing for a few years now. I was really excited when I found out you could create multiple savings accounts like that for free. I just wish it were easier to pay for things out of them. I’ve been trying to figure out a way to create a card version of envelopes, so that you could use different cards to pay for different kinds of things without having to open a different account with another bank. I’ve also wondered if it would be possible to use something like a Visa gift card that you could just reload as needed. My wife and I have hard time with something as complicated as the envelope system, but we may have to fall back on that for categories like groceries, unless we can figure out something better.

    A couple of corrections: it’s “formerly” not “formally,” and Mint was actually bought by Quicken, not developed by them.

    • Hey, thanks for the message. We too thought about using the different cards for different categories but we settled on just using one card and let mint do the divining. We do use Capital One 360 for near term savings but the one card approach has actually made it simpler for our needs. We tried using the prepaid debit cards and a few others (vanilla reloads) but they actually complicated it more. I is neat to see how many other people are using/interested in digital envelopes.

  6. Wow! Thanks for the article and others for comments. I’ve used Mvelopes for years concerned that mint would not “really” work with the envelope method. Would love more info on your assessment of Mvelopes shortcomings.

    On using several accounts and cards, we just opened multiple checking accounts with same bank (Chase). Without tracking I can see “Bills”, Child’s Tuition and Spending when I’m not looking at my envelopes and not get off track. Chase doesn’t have the subaccount feature yet. PNC virtual wallet is an option also however. Mints UI is cleaner than Mvelopes so I may try switching over! Thx!

    • I actually tried out mint before they had the budgeting part available (or well developed) but I was happy when they added that feature several years ago. I personally do not have a ton of experience with Mvelopes mostly because mint/capital one does everything I need for free. I’m still a huge fan of sub accounts and I wouldn’t be surprised if all the banks start adding a feature like that.

  7. Stephen: I love your blog!! In fact, I think I’ve been accidentally routed to your blog a few times by Google. Thanks for taking the time to write such interesting, helpful and thought provoking stuff.

  8. How does Mint know what account to take the money from in its tracking? I mean, if I swipe my debit card at the grocery store and then later at the movie theatre, how does it track which funds are for what to deduct from the account total? Is it programmed to know that Publix is for food and Regal is for entertainment?

    • It tries to guess the categories but you can go in and specify the exact category you want. It also learns over time which ones you use and gets more accurate over time.


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  11. Way to break it down for us “non-economic minded folks”! The hubby and I have many things we’re saving for right now (A move, an anniversary, new furniture, and a new baby…wow) and were just talking about how we wished we could find a bank that would use an “envelope” system. We got an email for Capital One 360 to earn $50 if you open an account by April 30, so it looks like this will work for us as well!

  12. I’m interested in doing this and looking to open a new savings account. However, I would rather have a real life bank. We have a rather unstable financial situation due to health problems. While I have at least 6 months in savings, I’d rather have quick access to it than having to wait 4-5 business days. I’ve had online savings accounts in the past, and this has been troublesome for me.

    What would be the simplest way to use this system at a traditional bank? Should I just open several savings accounts and link them? Do banks get mad at you for doing this?

    • Hey, that is a good question. We had similar concerns when we started as well. We actually have a token amount in a local bank with linked accounts. We can also use the 360 with lots of ATMs here for quick cash. We normally just use the debit card for big purchases. We have a checking 360 linked with all the savings accounts for instant transfers.

    • Thanks for the update. I know a lot of people that use YNAB and it works pretty well. Mint actually still serves all of our needs and is currently still free. I like YNAB but our system is still simple enough to do it on Mint.

  13. I really like the idea of using Mint for the envelope method but the problem I’m running into is it seems like increasingly more banks are either blocking Mint or for whatever other reason Mint has connection problems to the bank more often than not. Have you run into that at all and does anybody else know whether mvelopes has any better luck with that. I guess part of the problem is I just have too many credit cards from too many different banks.

    • I haven’t run into issues with it but I only have 1 card total and it is with a large bank so I haven’t had any issues. I know my mother had issues with connecting her tiny local bank but it did not provide connectivity to any services including mint (or mvelopes)

  14. I use this bank and LOVE it! I only have one question. I have in the past been limited on transfers out of my savings account into other accounts. I think it was like 6/month. Have you ran into this?

    • I have. It still has the same limitation. I rarely need to transfer more than 6 but if I do I just send a larger amount to checking and do unlimited from there.

  15. It’s really encouraging to see so many people seeking to be wise stewards of their funds. I appreciate your effort to offer solutions and ideas for management of personal finances. In that spirit I recommend checking Mvelopes out. No, I don’t get any financial remuneration from them. We’re just users – for about 8 years now. Mvelopes took 95% or more of the labor out of the day to day management of our finances. They eliminated the need to have multiple accounts, do transfers between accounts, enter transactions and caused our checking and savings accounts to increase 10x in just a couple of years with relatively small, and some years no, increases in pay. 2 years after starting to use them, we paid cash for our next car.

  16. I just stumbled across this post and had to comment. I’ve been doing the exact same thing for years and it really works! I always have the money to pay the bills when they are due, and we can usually stick to our budget as a result. I transfer funds from the “envelopes” each week to checking so its there when the bill arrives. The only thing I do differently is our paychecks go into one savings account. At the end of the month, the next month’s budget is scheduled to transfer to checking, then to the envelopes. This isolates the paychecks from the bill paying money, and we see larger interest earned because it sits for the month.

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