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Posted: 6:00 a.m. Tuesday, Feb. 11, 2014

Money management in a digital age

The envelope method can still be effective

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By Clark Howard

I read in The Kansas City Star about how people who can't handle their money by themselves have come up with a "scared straight" kind of way that works for them. It's a real throwback to a different era that is proving to be very successful today.

Want to know what it is? Pay in cash for whatever you can, using envelopes to divvy up your money and keep you within budget.  

My executive producer Christa does something that's related yet more high tech. She made it clear to me 8 or 10 years ago that she had trouble with money just vanishing out of her life. Then she hit on the idea of putting money into different accounts for different purposes.

Today she has 3 checking accounts and 1 savings account. She has each of her paychecks automatically split among these 4 accounts each month. Christa then uses to track her finances online. There's also a pay alternative some people like called that has a free trial offer.

Of course, a low-tech way to get a handle on your finances would be the envelope method. You simply take envelopes and write "groceries" on one, "utilities" on another, "walking around money" on a third, whatever it is in your life that requires money.

I often tell couples to do this particular method of budgeting. I once sat down with a couple that had more than $30,000 in credit card debt. We came up with a 30-month plan for them to get out of debt that involved the envelope method. They didn't think it would work, but they extinguished their credit card debt in 21 months!

Debit cards and credit cards can be the Bermuda Triangle of your wallet because it's so easy to lose track of finances when you use them. That's why I recommend that on payday, you take out the dollar amount you need until next pay period and split it up among your envelopes. When one envelope empties, you either take money from another envelope or you do without until next payday.

This is a simple method that will bring more control to your life than any budgeting tool on the Internet. But whatever method works for you -- be it low tech, high tech or somewhere in between -- is the one I want you to adopt.

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