As a bank that works hard to provide customers with information that leads to better financial decisions, Ally Bank understands how important it is to find a budgeting system that works. If you're a parent looking for a way to teach your kids about money, consider "envelope budgeting."
Envelope budgeting is an easy way to help your children see exactly where they are spending their money.
- Decide on the period of time the budget will cover. Your decision will likely depend on the frequency of your child's allowance or income from any jobs they might have.
- Figure out what your child spends money on. Is it movies with friends? Items from the bookstore? Snacks at the ballgame? Whatever these expenses may be, make an envelope for each one and fill it with however much your child is allowed to spend on this expense during their budget period.
- Explain to your child that whenever he or she spends money, the cash must come from the corresponding envelope. Once the money in the "book" or "movie" envelope is gone, for example, he or she cannot spend any more on this expense for the rest of the budget period unless the money is pulled from another envelope, which will, of course, reduce that budget item.
- Have your child track expenditures on the back of each envelope as the money is spent. Tracking spending is an important part of learning to budget.
- At the end of the budget period, encourage your child to tinker with the budget to put more or less money towards certain expenses. But be sure the total budget still remains at or below his or her income.
If your child isn't ready to begin his or her own journey into envelope budgeting, it could make sense to start one for your entire family. Then you can involve your children in the process at a level that fits their maturity and understanding. Opening dialog about money and giving your children opportunities to practice good budgeting skills will help them become better prepared for the future.
Ally Bank Is Here to Help.
A virtual version of envelope budgeting is easy to set up when you use bank accounts from Ally Bank. From the Online Savings and Money Market Accounts to the Ally Bank Interest Checking Account, you can divide your money in the way that makes the most sense for your finances and then easily use the online banking and bill pay services to implement your strategy. And you’ll be earning interest at rates that are consistently among the most competitive in the country—with no monthly maintenance fees.
Learn more by visiting Allybank.com or call live, 24/7 customer care at 877-247-ALLY (2559) today.