How to use the cash envelope system in a digital age

If you’re like us, you’re probably always searching for the best way to set a budget and stick to it. One method that many people use, which you’ve probably heard of, is the cash envelope system. But in case you haven’t heard of it, let’s tell you more about it.

What is the cash envelope system?

The cash envelope system is an effective and easy-to-implement budgeting strategy. It involves allocating specific amounts of cash to your spending categories, such as bills, groceries or entertainment, and placing your monthly budget in labelled paper envelopes.

This way, you can be sure not to spend more than what you’ve assigned to each category, provided that you stop spending once an envelope is empty. Just don’t give in to those voices that tell you to take out cash from the grocery envelope and put it in the entertainment envelope!

After all, the envelope budgeting system is designed to help you control your spending and stick to your budget, so ignore those voices.

What are its disadvantages?

Although this method has helped many reduce their spending and stick to a budget, it poses drawbacks, especially in today’s world, as our reliance on bank cards has increased.

Think about it. Would you be willing to ditch your card, the discounts and the cashback that come with it and only pay with cash? Pay bills in person? Or worse, be forced to cancel your Netflix subscription? The answer for us is no! We’re not interested in travelling back to 1999!

In today’s world, it’s almost impossible to only use cash and give up cards and all the convenience they bring. Plus, keeping large sums of money in envelopes at home might not be the safest.

However, you don’t have to abandon the cash envelope system altogether. What if we told you there’s a way to practise this method digitally?

How to use this method in today’s world?

We recently held a secret meeting at Bank al Etihad. Locked the doors, drew the curtains, kept our phones and laptops out of reach and started thinking: how can we adapt the cash envelope system for the digital age?

After brainstorming and several cups of coffee, we found the solution — sub accounts! What is a sub account, you ask? It’s a secondary bank account that falls under your main bank account. Think of the main bank account as a parent and the sub account as a child.

Sub accounts allow you to divide your money into separate digital ‘envelopes’, each with a different name, to help you organise your finances and keep track of your expenses.

You can open an unlimited number of sub accounts under your main Bank al Etihad account and have each sub account represent a spending category. This way, you can get a better overview of your expenses and spending.

First of all, you’ll need to remember the 50/30/20 budgeting rule. 50% of your income goes to needs and day-to-day expenses, 30% goes to repaying debt like credit cards, loans or if you don’t have any debt you can use the 30% to pay for your wants. And 20% goes to your savings account.

You can use your main account for your day-to-day spending . You can name one of your sub accounts “Bills” to pay for your water, electricity, and internet bills. Make sure to choose this account when you pay your bills on our mobile banking app. This way, you’ll know how much you spend on utilities every month.

You can name another sub account, “Loan Instalment”, and transfer funds to that sub account to make sure you pay as soon as you receive your salary. You can also do that on the mobile app! ;)

If you’re saving for a big purchase, create a saving goal! It’s a sub account that stores your rounded up spare change. You can name it “Vacation” or “New Car” and treat it like any other account, and when you’ve reached your goal, you can easily transfer the amount to your main account and spend it!

To make things even easier, you can set up standing orders to transfer money from your main account to your sub accounts automatically every month.

To learn more about this, listen to episode 4 of our podcast, Mali wa Maluk.

How do I open a sub account?

All you need is a smartphone, the Bank al Etihad mobile banking app, and a spare few minutes!

Here are the steps:

1. From our banking app, tap on the icon at the top right of the main screen.
2. Tap on + Open new account at the bottom of the “Accounts manager” screen.
3. You will be directed to the “Add New Account” screen, where you will be asked to select your account type and currency.
4. Select your account type from the options available.
5. Select the currency of your account. You have the option to choose the Jordanian Dinar, Swiss Franc, New Zealand Dollar, Canadian Dollar, or US Dollar.
6. Tap on Create account. You will be directed to the “Confirmation” screen, where you can either select Okay or Feed it. If you tap Okay, you can transfer money into your account later. If you tap Feed it, you will be asked to transfer money into your sub account from your other accounts.

You can also rename each sub account to distinguish between your accounts. Here are the steps:

1. Tap on the icon at the top right of the main screen. You will be directed to the “Accounts manager” screen.
2. Tap on the : symbol, then on Account details from the list. You will be directed to the “Account details” screen.
3. From the Account name field, tap on the pencil icon to be directed to the “Rename account” screen.
4. Change the account name.
5. Tap on Save.

  Ready to start budgeting using the digital cash envelope system? Open a sub account today!