A tried-and-trusted method of budgeting is separating your available cash into different envelopes, such as bills, savings, entertainment etc. However, keeping physical cash in envelopes isn’t just impractical, it’s also a potential hazard that could leave you out of pocket.
There’s now the modern equivalent that performs exactly the same function: digital envelopes. Using digital envelopes means you can apportion your income to the area you want, and it’s a system that’s much easier to use than it may sound.
Here’s a quick look at the digital envelope system and how you can use it to help you budget.
Create your budget
For this system to work, you need to have a clear budget and to understand how much cash you have to allocate to each envelope. If you’ve never sat down before to work out your budget, this is the perfect time to start. You may well have a rough idea of all the figures in your head already but committing them to a formal budget can make sure everything is covered.
It’s up to you how to split your budget and the categories that you want to allocate. You won’t want lots of envelopes to organise so it’s a good idea to group your potential outgoings. Some common envelopes include:
• Household bills
• Misc spending
• Emergency funds
There’s no right or wrong way to set up your budget, but it is important that you include all your costs. The idea is that using this system you’ll be able to clearly see exactly how much cash you have left over and how much you’re able to save.
Set up Transfers
Once you know how much money is being allocated to each envelope, the simplest way to move the money is to set up an automatic transfer. This can easily be changed if necessary but it ensures that the money reaches its intended destination and doesn’t end up getting spent elsewhere.
You can move money between the envelopes if necessary, but if you’ve got your budget right at the start you shouldn’t need to do so very often. However, for example, if the car breaks down or you need a new boiler you might need to dip into your emergency funds.
Pay Bills Efficiently
The facilities provided by digital accounts depends on the provider so it’s important to check the small print before signing up. Some charge fees so this needs to be taken into account when you’re budgeting for your monthly costs.
Some digital envelopes allow you to pay bills directly; this can help with your overall financial management and avoid late payment fees.
A Simple System
Digital envelopes are a simple system, once it’s all set up and in place. The idea is that it should make your financial life much easier, not add extra work or complications. The digital envelope concept offers lots of benefits such as clearer budgeting and greater control over your income and outgoings. It should suit everyone, immaterial of the size of the budget, but it’s essential to find a supplier that offers what you need.
The Suits Me current account offers many banking facilities including the Envelopes facility. Apply for a Suits Me account today, open your account within minutes and gain instant access to your account number and sort code and online banking facility and free mobile banking app.