Budgeting with digital cash envelopes

This month, I went back to school with my finances. In other words, now that groceries, fuel and energy are more expensive, I looked at my spending and created a new budget with more accurate spending targets using Starling’s Budget Planner.

The budgeting method I use is a digital version of the envelope method, also known as cash stuffing. Traditionally, this method involves separating physical cash into different envelopes to budget for different expenses.

As a Starling customer, I can use Saving Spaces, the app feature that enables me to keep money separate from my main balance, to organise digital envelopes. I can create multiple Spaces, for example for Subscriptions, Transport and Entertainment, and top them up with my target spending amount. This digital envelope system doesn’t involve physical cash and can include card payments, direct debits and standing orders.

Fixed essential costs

To kick off, I opened Starling’s Budget Planner and entered my monthly income and monthly bills, which include:

• Rent

• Council tax

• Energy

• WiFi

• TV licence

• Phone bill

• Insurance

(The figures and images below are illustrations, not actual figures or images from my bank account.)

Flexible essential costs

I then entered how much I wanted to spend on groceries for myself and how much I could expect to spend on food and other necessities for my two dogs.

To work out a target for groceries, I used the Spending Insights section of the Starling app to look back over what I’d spent in the last three months. I then divided this total by three to calculate a monthly average and rounded this figure up to account for prices increasing.

I repeated this process to work out how much to allocate for fuel, which I noted in the ‘Transport’ section of the Budget Planner. I live in the countryside so having a car is essential for me.

Digital cash envelopes with Spaces

To put my budget into action, I created Spaces for my ‘Home’ (energy, council tax, WiFi, phone bill), ‘Car’ and ‘Dogs’. I then topped up each Space with the amount I expected or aimed to spend and arranged automatic top ups for the beginning of each month.

I also used the Bills Manager feature to connect specific direct debits to specific Spaces. For example, I set up my energy bill and council tax to come out of my ‘Home’ Space.

Lifestyle

Next step? Working out what I want to use my remaining balance for and creating Spaces for my spending categories, which include:

• Subscriptions

• Restaurants

• Takeaways

• Shopping (clothes, shoes, books)

• Wellbeing (hairdresser, dentist, cosmetics)

• Entertainment (cinema trips, nights out, pub quizzes)

• Transport (trains to see friends, taxis)

• Charity donation

• Celebrations (birthday or Christmas presents for loved ones, drinks to celebrate a friend’s new job, transport to and from a birthday party)

• Holidays (weekends away or savings for longer trips)

Using the Budget Planner, I entered my spending targets for each category and clicked ‘See results’ to find out how much I had left as a buffer and if I could afford to save something each month.

Savings

After looking carefully through the results, I decided to top up my ‘Savings’ Space each month with a small amount of money for my ISA and personal pension. I then used Bills Manager to connect the direct debits for these contributions to my ‘Savings’ Space.

Over the years, I’ve built up an ‘Emergency Fund’ Space for unexpected costs, which is why I feel comfortable setting money aside in an ISA and personal pension. As always, capital is at risk and investments can go up and down.

Feeling in control

When I had finished, all that was left in my main bank balance was my budget for groceries and a small buffer. Essentially, this means that when I want to go to the cinema or buy a new book, I have to move money from a dedicated Space into my main balance. And ultimately this means that I feel more in control of my spending because of the visibility I have.