One question I routinely get asked by friends and readers of this site is, “Can you teach me how to save money without losing track of what it’s for? How do you account for your money when you are saving for an emergency or for a future need?”

The problem boils down to this issue: you have to keep track of what money is to be used for what purpose. When money is deposited into a savings account it gets mixed in with all the other money in the savings account. How do you keep the boys separated and make sure the money designated for the new dishwasher actually ends up going for the new dishwasher and not the car insurance or the baseball card fund?

Now in the old days you might find yourself reaching into the desk drawer, pulling out an envelope and stuffing cash in it. Then you would write on that envelope “Dishwasher Fund” and hide it away in your house somewhere. You’d do this for any and all items you’d be saving for – vacations, the health insurance bill, groceries, gas and anything else you might think of.

This describes the classic envelope system way of saving money for what’s coming down the road. Doing it this way keeps monies in the envelope they belong and makes sure they get used for their intended purpose.

The envelope system is still a valid tool for managing cash payments for items. However, we’ve moved into the digital age where all banking can be done online, transactions can be downloaded to computer programs and apps have been developed to keep track of your spending on the go. Money is more likely to be direct deposited in the bank rather than kept at home in large sums awaiting use.

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