Prepaid Gift Cards for Modern Envelope Budgeting

Envelope budgeting -- what is it?  It’s an incredibly simple but powerful way to manage your money.  At the beginning of the month or pay period you decide how much money you want to spend and in what category.  If you are already actively budgeting this should be straightforward but if you are just starting out you might want to pick some of your problem areas. For my family that was groceries and eating out.  So we make our budget and get out cash for each category, slap it in an envelope and Wazaam! You’re envelope budgeting.  When there’s no more money in your envelope you stop buying things.  It’s a dirt simple system that your great grandma may have used.  But what if you want the flexibility of a check or credit card and don’t want to carry all that cash around?  Enter in the electronic envelopes.

Prepaid Gift Cards

Head on down to your local bank or credit union and odds are they’ll be happy to provide you with a gift credit card that you prepay like Visa Buxx or some other options.  The one downfall of these cards is they are rather difficult to reload with cash, and may have various fees that go along with them.  Well, there is one more unconventional option that wasn’t necessarily designed for you.

Paypal Student Cards

Yeah, that’s right: a student card.  Paypal has recently rolled out a new account option that lets you give junior a Mastercard Check card that you can refill from your paypal account.  There are no fees for using this card other than a $1 charge for pulling money out of an ATM.  Yeah, great, but I don’t have any kids.  No worries as there is nothing stopping you from getting one in your name our your spouse's.  Transfer some money from your Paypal account and you are ready to head out to the grocery store.  Now, it’s not likely that you are going to get a prepaid card for every category. One approach is to bundle all those categories into one card, but it does remove some of the benefits of having distinct categories from the traditional envelope budgeting method.

Envelopes Vs. Prepaid Cards

If you are seriously interested in starting down the road of envelope budgeting or a prepaid option it’s good to know some of the pro’s and con’s of the prepaid card route versus standard cash envelope budgeting.

Prepaid Card Pros:

  • Ease of payment anywhere Mastercard is accepted
  • Consumer protection in the event the card is lost the funds can be replaced
  • Carry a single card rather than large amounts of cash
  • Works internationally with fees for currency conversion
  • Prevents overspending because it’s prepaid and not a credit card

Prepaid Card Cons:

  • More likely to spend more than if paying with cash
  • Potential Fees for reloading and ATM’s
  • Daily limits of Paypal Student card limited to $650 ($150 from an ATM and $500 in purchases)
  • More difficult to maintain multiple cards for multiple spending categories

Related Budget Reading

If you are interested in learning more about envelope and budgeting in general check out:

Your Budget:  Envelopes or a Plan?
FiscalGeek’s 3 Part Series on Zero Based Budgeting


This post was included in the Carnival of Personal Finance.

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Guest's picture

Great ideas! You could also buy gift cards from merchants. It does limit flexibility a bit, but if you find you always get gas from the same Costco gas station, get a Costco gift card for your gas budget! Most merchants don't have fees on their cards, unless you don't use them for a long time.

Paul Van Lierop's picture

That's a good idea Lacey that way you could actually carve out your specific categories albeit at some narrowed shopping options.  Although for me Costco is like my Achilles heal, gas, hot dog, reciprocating saw, 20 gallons of Ketchup, check.

Will Chen's picture

Great ideas Paul!  Wish I had tried these strategies instead of signing up for all those credit cards in college.  On the plus side, I have a ton of free t-shirts and posters of Che Guevera.

Guest's picture

Some schools and organizations sell gift cards as an ongoing fundraiser (they get a small percent back)- this could be a good way to buy gas, clothing, and grocery gift cards.

Guest's picture

A grocery store gift card is a great way to get your feet wet with envelope budgeting. Most stores offer them and you can fill it at the store in the checkout line or at customer service. Some stores, like Kroger, will link the gift card to a school and donate a percentage of your spending to that school.

Guest's picture

Paul, Kate here, I love your idea of using gift cards to budget. There are lots of reloadable cards out there. Also, at Safeway there is a whole wall of cards. The absolute best part is the money you spend on the cards goes toward your gas reward credits. I have been using these cards and a budget system for Ebay now and I get 50cents off/gallon!!! I hadn't thought of using it for other categories, but the gas rewards would just keep adding up! You can even purchase Safeway cards to pay for your groceries. I think they even have general Visa gift cards too. So I will just take my cash and pick out gift cards. Awesome idea. I don't like having that much cash on hand.

Paul Van Lierop's picture

Hannah:  My wife also reminded me of the school promotions a great way to earn money for your school and help your budget at the same time.

Kate:  50 cents a gallon off is awesome for sure great work. 

Guest's picture

I just use real envelopes and cash for the two or three categories that are most important for me to control--food, and entertainment, and gas and parking costs. You will save a lot more money using a cash envelope system than using cards. For one thing, using cards in general just habituates you to reach for them whenever you want them. But when you reach for your envelope of cash it is much more concrete and you can always see how much $$ you have. For the few things that electronic payment are more convenient for (gas for the car is one, or internet purchases) keep cash in an envelope for the category and then when you spend money on the card pull the cash from the envelope and put it in the VISA envelope--that is the money that will pay the bill when you are done.

I just put the cash envelopes in a ziploc bag in by carry barg with my credit card, bank card, and ID and it really has broken me of the habit of overspending.

Guest's picture

If you're not used to having a lot of cash on hand it is an adjustment so start with keeping the month's cash envelopes at home and stocking your carrying cash envelopes just for a week at a time.

But really you get used to carrying cash and as to the "security risk" I know I lost a lot more money--to the tune of tens of thousands of dollars--using electronic payments than I ever would by losing or having stolen even an entire month's worth of cash envelopes.

Guest's picture

I love this. My husband and I have been trying to do "envelope" budgeting, but the only category we actually use the envelope for is entertainment/personal spending. Naturally, this means the other categories aren't as tightly controlled. I will have to try this.

Guest's picture

thank you for your sharing

Guest's picture

Great post Paul! When December rolls around we will be buying gift cards for fuel, groceries, and two restaurants to cover our two eating-out meals for the month. We may do a mix of envelopes and gift cards and see what we like the best.

Guest's picture

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