Can the Envelope Hack Work in a Digital Age?

It's all the rage on TikTok. The ​100​ envelope challenge has helped consumers save thousands of dollars by simply putting cash in envelopes. But you don't need a viral social media challenge to save money the old-fashioned way.

Life hacks often show up on trending lists simply because they offer easy ways to solve problems. The envelope hack uses basic psychology to encourage you to save. Studies have shown that credit card spending can lead to more reckless financial behavior, whereas with cash, consumers tend to be stingier with their funds.

With the envelope hack, you buy ​100​ envelopes and number them from ​one​ to ​100​. Every day, you'll pick a random envelope, then put the value, in cash, into that envelope. If the envelope is number 47, you'll put $47 into it. At the end of ​100​ days, you'll have money in each envelope.

The envelope-based money-saving challenge can be a fun way to incentivize yourself to start saving. But having that amount of cash, including small bills, can be a challenge of its own. You can still participate in the challenge using digital envelopes and your savings account.

Here's how this simple hack works virtually. You can find printable templates online or simply track your envelopes in a spreadsheet. Each day, use a random number generator to pull a number between ​one​ and ​50​. When a number comes up, move that amount of money into your savings account and mark that envelope off your list.

While the envelope hack can be a genius way to build savings, it won't be of much use if you start pulling spending money out of those envelopes. If you're participating in the envelope hack using cash, make it a point to deposit those funds as soon as the challenge is over. You may want to put the money into a CD or low-risk investment to maximize your interest.

If you're doing the digital version of this DIY savings plan, it's important to move the money out of your spending account and into savings. Ideally, you'll set up a separate account or category within savings so that you can see the funds adding up. That growing dollar amount can be a big incentive to keep going.

You can still participate in the challenge using digital envelopes and your savings account.

For many, putting extra money into envelopes isn't an option because they simply don't have it. As you look at your budget, see if there are areas you can cut back your spending for the money you need to fill those envelopes. You can even use the envelope method for budgeting, which involves taking out money in cash and separating it into envelopes that cover each monthly expense. When the money in one envelope is gone, your only choice is to take it from another or stop spending in that category for the month.

Another great way to build a rainy day fund is to bring more money in. There are plenty of side hustles that will give you the flexibility to earn income in your spare time. You can take that extra money out of the bank in cash and use those funds specifically for the envelope challenge.

​Consider also​: 9 Side Hustles You Can Start Today

With the ​100​ envelopes challenge, you can save over ​$5,000​ in less than three months. It's a great way to build your emergency fund, save money for a vacation or project or get a headstart on a downpayment on a new house. As fun as this challenge can be, it's only one of several ways to build savings. It's important to find the method that works best for you.