Budgeting With the Modern Envelope System

I like the envelope system of budgeting, but I think it’s time to bring it into the modern age with a little twist. I call it the Modern Envelope Budgeting System. 

How do you decide where to put your money? You want to save, but you also want to live a little. Don’t forget the bills! And what do you do with expenses that you are anticipating?

There are so many budgeting systems in place; why do you need yet another one? My budgeting system is not really a new concept. It’s been around for a long time. Many personal finance experts have espoused Zero-based budgeting and envelope budgeting, and for a good reason: it works.

However, as we move to an increasingly digital and cashless society, there are many drawbacks to those systems. I found that they didn’t totally work for me. Almost but not quite. And it’s that “not quite” caveat that makes the budgeting fail.

I do have a disclaimer to add: if you are truly terrible at money or have an addiction of some sort that makes using credit cards and online shopping risky: DO NOT DO THIS! This system works for me, but I also don’t really have any major issues that make budgeting supremely difficult. I am just poor and busy.

I don’t have time or energy to spend too much on budgeting or tracking my spending, but I also don’t need to dig myself out of a huge pile of debt because of overspending or addiction. If you find that you are not like me, please check out some other great and amazing personal finance sites to help you find a budgeting system that works for you.

Anyways, after all the caveats and disclaimers. This is how I adapted the zero-based budgeting and envelope budgeting system into a more modern envelope system.

I Call It the Modern Envelope Budgeting System.

The best way to budget your money is to decide before receiving it where each dollar will go. This is a combination of various budgeting system- and it works!

This is a cash budget, which means that you can only spend the money you actually have. Some financial advisors will tell you only to use actual cash or direct deposits, but I see no harm in using a credit card AS LONG AS THE MONEY NEEDED TO PAY FOR IT IS ALREADY IN YOUR ACCOUNT.

Unless you are great at self-control and are very good at keeping on top of your account amount, I still recommend using cash for discretionary spending- food, splurges, etc.

The easiest way to track your money and budget- its an old system with a modern twist. Click To Tweet

In my opinion, the best way to keep track of your money is to divide it into separate categories as soon as you get it. Some will tell you to take out the money and put it in a labeled envelope, hence the term “Envelope system.” Still, I suggest you open several sub-accounts and just deposit the money in there in these modern days on online banking and virtual envelopes and buckets.

CapitalOne360, for example, allows you to have many savings accounts that can be named whatever you want and can be accessed easily from your computer or phone. You can transfer money directly from your main checking account, so it’s easy to divide your paycheck. However, you can only withdraw 5 times a month from each savings account so keep track.

Tip: If you do put purchases on your credit card, pay a bunch at a time, instead of each transaction so that you don’t use up your withdrawal limit.

The Envelopes: Envelope System Categories

Each person will have their own categories, but here are some basic ones that I will discuss:






Coming soon




Basically, you divide your paycheck every month (or 2 weeks) into these categories and transfer them into the corresponding accounts. Some will be a fixed amount monthly, and some will be percentages.

So… this is how it works….

Budgeting With the Modern Envelope System

Charity- 10% right off the top. No need to think about this one. Put it in another checking account or savings account, and you can give it out as needed. When there is money in your Charity account, you can feel comfortable giving a decent donation to a charity of your choice or be able to sponsoring your niece in her ride-a-thon or give to a friend in need.

Savings- This should be approximately 15% of your paycheck, but you should try to make it as high as possible, especially if your bills are low. It should definitely be more than your splurge or clothing account. You take this money and put it wherever you are on the Savings Ladder. (If you are working on an emergency, you put it there, if you are up to retirement, put it there, etc.)

Please notice how you put the 15% immediately into your savings account (envelope) when you get your paycheck. You don’t put your leftovers in your savings account- this is what PAY YOURSELF FIRST means.

Bills- Take all your bills and add them up. If they sometimes fluctuate, round up from an average month. Put that amount in your bill account. If there is leftover at the end of the month, it rolls over, so when your electricity bill is higher in the summer, you have some extra money in the account to cover for it.

The best part of this system is that you already have the money in your account to pay for it when you get a bill. No playing catch-up! No need to worry about whether you will have enough for a slightly higher bill. It is already in your account; just waiting for that bill to come. Talk about removing stress from bills!

Transportation- Take your gas bill or bus costs and figure out how much you spend approximately every month. Put that amount each month into an account and roll it over if there are leftovers. This makes sure that if you use more gas in one month, you have the extra money in the account to pay for it. If you have fixed transportation expenses, i.e., a bus card, you can combine it with your bills account.

Regular Maintenance- If you own a car or a house, you should also put some money in here for maintenance. If you put in a small amount each month, you will have the money for it when you need maintenance done on your car or home. Car problems don’t need to mean an emergency. (Although I am using a car and home as an example, you can set up accounts for anything that needs regular care).

Coming soon- This is the account that is for very short-term savings. You can also call this a holiday account. This is for things that come up every once in a while but not regularly. Examples are holidays, birthdays, weddings, and semi-big purchases that you will need or want, ex a new computer or phone. Saving for these things means that you don’t have to borrow or put money on a credit card when these expected expenses come up.

Clothes- This is the same idea as the “Coming soon” account. Put aside money each month for clothes, shoes, and accessories. Although you may not shop each month, the money rolls over so you can shop freely when you want. This can also help you take advantage of sales- during the off-season, you can buy clothes on sale without guilt because you have the money put aside for it!

Food/Discretionary- This account is for all the food, toiletries, and day-to-day spending. This money can stay in your checking account because this is the money that you are spending every day. Again, if you have leftover money, roll it over into the next month. Having a set amount to spend on these items will ensure that you stay within your budget when the money is running low-stop spending!

Splurge- This is the last account to be filled, and the first one that gets cut out when things get tough. Obviously, each person will have a different idea of what gets paid from the splurge account, but this is the account for fun. This account gets filled LAST. Although it is important to have “fun,” this should not come at the expense of your financial security.

Don’t skimp on savings, maintenance, or bills for a little fun, especially when there are so many ways to have fun or take care of yourselves that are cheap or free. When you run into financial difficulties or expect a big expense and don’t have enough saved up-, this category should be the FIRST to go.

These are just examples of some of the accounts that I have (I also have one for property taxes, building fees, and some others), and each person will need to decide which accounts or envelopes they need. You may have accounts that change over time, and you may need new ones as your needs evolve (if you are a new parent, for example). The point is to have money to cover all your expenses and anything that may come up.

Planning for events and purchases that are bound to come up will leave you with security in knowing that the money you need is set aside.

This system is not new. It has been around for a while. I suggest (as written above) utilizing different online accounts instead of having actual envelopes that may get lost. This is why it’s a Modern Envelope Budgeting System- we no longer rely strictly on cash to survive. We need to be able to have our budgeting system work for online purchases and stores that don’t take cash as well.

The most exciting part of using online savings accounts for some of the lesser-used categories:

Interest! That’s right! for example, Capital One gives you interest on these savings accounts, which means that your bill money can potentially MAKE you more money while waiting to be used. It won’t be a lot, but every little bit counts!

The second exciting thing is Credit Cards. Many credit cards give great cashback or rewards for using them. If you put a bill on your credit card THAT YOU ALREADY HAVE THE CASH FOR IN YOUR ACCOUNT, you can get points and cashback while still staying out of debt and in control of your spending.

The Modern Envelope System!

Read more here about budgeting with an uneven paycheck.

Hi! I am a millennial mom with a passion for personal finance. I have always been “into” personal finance but got inspired to start my blog after a period of extended unemployment. That experience really changed the way I viewed my relationship with money and the importance of accessible personal finance education.

2 thoughts on “Budgeting With the Modern Envelope System”

  1. I do this, but without actually moving the money to different accounts. I have spreadsheets for different categories and what’s left rolls over to the next month. Sometimes I move money from one category to another if there’s a surplus in one and I’ve had lots of expenses in another. It works for me, but like you I’m already pretty good at budgeting so don’t need the discipline of actual cash or physical envelopes.

  2. Ooh! I like this idea! I always heard of the envelope system, but using only cash makes me nervous, besides being extremely impractical for online grocery and other shopping!
    It’s a good idea to make use of subaccounts for this. I hadn’t thought of leaving money in the subaccount to help cover uneven expenses – like a utility bill that’s 2x as high during the summer!


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