Envelopes are for more than letters

Envelopes are for more than letters

How to use the envelope method to control your cash flow.

Control, control, you must learn control of your money!

However you do it, you need to make sure that you are spending your money only on items that really matter, and envelopes can help.

Step 1: PYF: Pay Yourself First - Move 20% of your Net Pay into a Savings Account of your choice. Move 10% of your Net Pay into the Retirement/Investment account of your choice. (401K - Match, Roth IRA, then Traditional IRA)

This is a simplification. In reality, you have 30% to split between Saving and Investing. You want to be "Investing-Heavy" when you are young (15% Investing & 15% Saving). There will be more on manipulating these percentages later in the course.

Step 2: Make Envelopes for each of your budgeted categories. This can be as few as five (Housing, Transportation, Food/Misc., Insurance, Charitable Contributions) or many more if you enjoy additional levels of detail.

Step 3: Move the appropriate amounts of cash into each of the envelopes. You can do this based on expenses or based off of percentages, whichever is lower.

The Percents are:

30% Housing

15% Transportation

10% Food/Misc.

5% Insurance

10% Charitable Contributions

Step 4: Start paying for expenses. Once the money in an envelope is spent you cannot spend any more money on that category.

Step 5: Additional Savings: At the end of the pay period (if paid twice a month) or at the end of the month, deposit any cash still in an envelope into your Savings Account.

Monitor and Adjust:

Not enough: If you are consistently running out of money in an envelope (category) then look at the expenses in that category and try to make an adjustment (lower the cost).

Too much: If you consistently have money left in an envelope then reduce the amount put in and PYF the extra amount. (No point in carrying around extra cash that could get lost.)


1. What is the purpose of the Envelope Method?

2. How many envelopes do you currently need?

3. What do you do with money that is left over in an envelope?


Lecture Guide

PowerPoint: Unit 3 Test

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