How I Use a Modern Digital Envelope System to Make Paying Bills Easier (Cashless)

This modern envelope system is a digital twist on an old-fashioned technique (now called cash stuffing) for saving for the bills and other everyday expenses.

The envelope budgeting system has been around for a long time.

Our grandmother’s grandmother used it to take care of the household finances. It’s a time-honoured system because IT WORKS.

Which is why it’s making a comeback, but the next generation calls it ‘cash stuffing’.

Economist have even given it an ‘official’ name: mental accounting, although they tend to be reserved about its benefits.

Here’s the downside…

Modern banking and finance mean that the old cash stashed in envelopes system isn’t always practical.

In a tap and go society, we don’t pay cash for many expenses anymore, especially for bills, which are normally B-Pay paid. It’s a bugger to have to withdraw cash to save for the electricity, only to deposit it back to B-Pay.

Also, having a large amount of cash hanging around the house isn’t very safe.

So I’ve taken the old cash envelope system that I used to use many years ago, and given it an update.

I’ve outlined this modern digital envelope budgeting system that I use below. First, however, I’ll cover an overview of the traditional envelopes system.

Disclaimer: This is general information only. In this blog, I share my personal savings and budget stories and what works for us. You should always consult a qualified financial expert when making money decisions (not a random stranger on the internet like me – or even your mate at the pub).

The Traditional Envelope System AKA Cash Stuffing

Before we get to the modern envelope system, here’s how the old-fashioned envelope system worked.

Step 1

Every payday, allocate your pay to different expense categories. Work out how much you will need for the groceries, how much for the petrol, how much for the bills etc.

Step 2

Divide your cash and fill your envelopes. Nowadays, they have these super-cute cash binders. Withdraw the amount of cash you need and put it into separate envelopes, one for each expense category.

Bonus! No pesky eftpos fees with cash.

It’s not necessary to have an envelope for everything you spend your money, on just the main categories. For example, you may have an allowance envelope for things like coffee and magazines. You might also have a groceries envelope and a petrol envelope and an electricity envelope.

Step 3

Spend until it’s gone and spend no more. If you spend all the money you have allocated in the first few days, it means you have to make do until your next payday.

Step 4

Put any leftovers into savings. If you have any money left over in any of your envelopes, put this aside into your savings account.

You can, of course, also have a savings envelope, and pay yourself first.

An important aspect of this system is that you are spending CASH. The reality of handing over cold hard cash hurts, so you are more conscious of your spending and less likely to overspend.

My Modern Digital Envelope System

This system is similar in principle, but with a modern, digital twist.

Instead of dividing cash amongst envelopes, I divide it mentally separate categories in a spreadsheet.

You could also use pen and paper, an app, or physically divide the money between multiple bank accounts (some banks allow this without extra fees.

Here’s the process I take each payday to virtually cash stuff my spreadsheet.

1. I still need a budget for my money and spend within my allocated budget. In my simple budget, I divide up regular bills to work out how much I need to put aside each payday to cover them.
2. Pay yourself first. If I can, it’s always best to allocate money for savings first, then any debts, then fixed expenses such as insurance or utilities, then spend what’s left.
3. Draw only the cash you need for the week’s allowance money and any other cash expenses like petrol and groceries. Once this is spent, that’s it for the week. I use a prepaid card for this…tap and go, can’t beat the convenience, but I also can’t overdraw it either.
4. The amounts that I allocate for expenses goes into a high-interest bank account rather than drawing cash and stashing it into envelopes.
5. I keep track of how much I have saved and allocated for each category, by keeping a record of my savings account balance, broken up into your expense categories. I use a spreadsheet (tutorial below), but you can also use an app – Goodbudget is a good free choice for this type of budgeting.

When I first started this, I kept an exercise book with a page per expense, and a total page that equalled what I had in the bank.

Now I use a spreadsheet in combination with my budget. I still allocate an amount each fortnight to the electricity account, for example, but it goes into a bank account instead of into an envelope.

Keeping your money in a bank account means you are earning interest and it is still allocated into virtual envelopes.

Take Your Modern Envelope System One Step Further

This is an advanced technique that only works if you’re disciplined with your spending and saving.

We use our credit card to pay for expenses, and then pay it off immediately with the cash we’ve saved.

• When the bills come, I know I can pay them in full because we’ve already saved ‘cash’ and allocated it in our spreadsheet for the bills.
• Rather than using savings, we use your credit card to pay the bills.
• Then we pay off our credit card in full every month with the allocated cash in our high-interest savings account. No interest is paid on the credit card.

This method only works if you have no outstanding debts and you pay your credit card balance off in full every month.

It’s a good way to increase savings interest, keep the money for longer in an offset account against the mortgage, or collect points on a credit card. It can also help you establish or improve a credit history, as long as it is paid off regularly.

The modern envelope system makes paying the bills easier because instead of scrambling to find money to pay the bill when it arrives in the mail, you smooth the bills out by putting a little away for each bill each payday.

That way, you already have the ‘cash’ on hand when the bill does arrive.

Take the stress out bill payment and the money out of the mattress with the modern envelope system.