Mvelopes: Use Digital Envelopes to Keep a Budget

One of the oldest budgeting tricks is to take your money and divide it among envelopes (or jars). Once the money is in the envelopes, you had only that amount to spend for the month. If it ran out before the end of the month, you either had to recast your budget or look at your spending habits. Providing you don't borrow from other envelopes, the system works.

If you're not a fan of envelopes lying around on your desk, you can use the digital envelope method - thanks to eight-year-old company Mvelopes.

While fewer Americans and Canadians are living pay cheque to paycheque – 40 per cent for Americans and 47 per cent for Canadians – both still aren't budgeting properly, which can affect savings and retirement.

Mvelopes founder Steven Smith, president of Finicity says, "The number one frustration for financial advisors is that people don't have the money to fund the plan." He says, "We understand that one issue of cash flow management is budgets, but you can't just earn your way there."

Smith explains that most people look at their chequing account and do "mental math." He says, "That doesn't account for periodic expenses. You spend too much on month-to-month expenses and not enough on periodic expenses, then you pull out the credit card to pay for your car repairs."

According to Smith, people who budget using Mvelopes increased their chequing account balance by $5,000 (all US figures) in the first 18 months.

With Mvelopes, says Smith, budgeting becomes easier than trying to guess your way through your month, especially when it comes to the periodic expenses. What he recommends is looking at a year's worth of periodic expenses (as well as your regular expenses) which can be found online with most banks and using that as the basis for setting up your account. That way, you get an idea of your actual spending. "You can guess," says Smith, "and put away $30 a month. I say it's better to look at a year."

Mvelopes is easy to set up and you can sign up for free. Once you input your financial information and set up your virtual envelopes, the process becomes almost automated, unless an envelope amount needs to change.

If you want financial advice, the Money for Life Center charges US$49 for coaching services.

While the company is based in the US, Smith says that 10 per cent of their customers are Canadians. The site links to most Canadian institutions, except for CIBC.