Prepaid Gift Cards for Modern Envelope Budgeting

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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.