Shortly after I became a Christian, I discovered Christian radio. I was a dental hygiene student and had to rise well before dawn to get to school by 7:30. Every morning my clock radio would awaken me just in time to hear the late Larry Burkett’s How to Manage Your Money broadcast (now Crown Financial Ministries).
Now, more than three decades later, I can trace our family’s financial stability back to the principles I learned in those 5-minute radio segments. In the next two blog posts, I’d like to share a few of the best financial lessons I learned.
Best Financial Lesson #1: Use the envelope method.
The envelope method is an extremely simple *oh I hate to use the B word* bbbbbbudget. You simply take the amount of your paycheck and divide it into spending or saving categories, then give each category its own envelope.
Our early envelopes had labels like Rent and Electricity, Groceries, Gas, and (my favorite) Out to Eat. We included envelopes for Savings and Giving (10% each), and a Long Term Expenses envelope. This took care of all the expenses that came due once or twice a year, like car insurance and car taxes. We added up the bill amounts, then divided the total amount by 12 to get the monthly amount we needed to put into the envelope. Lastly, we had a Miscellaneous Appliance Fund to save for the inevitable appliance repair or replacement.
Once we had listed our expense categories, with envelopes to match, we wrote a dollar amount on each. Then we’d place that amount of money in the envelope every month. If we got paid weekly, we’d put a fourth of that amount in every pay period. Bi-weekly, we’d put in half.
For example, if our rent was $700 a month, and we got paid twice a month, I'd to put in $350 into the envelope each pay period. If I got paid weekly, I’d put in $175 from each paycheck.
Some expenses, like rent and student loan repayments, were fixed amounts we had no say in. As we allocated our paycheck funds, we paid those first. Once we subtract the fixed amounts (and we considered giving and saving non-negotiables), what was left covered the other categories. If there were more envelopes than there was money, we’d cut some of the negotiables.
While we’d have liked to spend $100 a week on groceries and out to eat, we sometimes had to cut the grocery amount in half and skip eating out entirely. Other months all we could put into that discretionary fund was $10. A small amount like that encouraged us to look for coupons, specials, and other ways to stretch our funds.
When we first established the Miscellaneous Appliance Fund, $15 a month was all we could afford to put in it. That didn’t sound like much, and it wasn’t, but every month we’d tuck it away anyway. God was gracious to us, and nothing broke down or needed replacing for FOUR years. What had seemed like a minuscule amount when we began multiplied over time into enough money to replace our broken washing machine when the need arose without going into debt.
The envelope method is a powerful visual of how budgeting works. It shows us in practice what we know in theory—that the funds of our paychecks are going somewhere. Our job is to decide where they go and see to it that they get there.
An important detail to keep in mind is that it’s a BIG NO NO to rob from one envelope to pad another unless we’re redirecting discretionary income. It is not OK to take money from the Rent envelope and move it to the Out to Eat envelope.
Embezzling like this can easily happen if we have all our money in a checking account without a clear understanding of where we have it committed. In contrast, seeing our money tucked safely into its respective envelopes helps us realize that most of it is allocated, and we’d better think long and hard before we spend it. We’re much less likely to raid our Student Loan envelope when the craving for an expensive lunch strikes if we have to physically open that envelope and take the money out.
On the flip side, if we’d rather have friends over for homemade chili and brownies than go out to eat, we can certainly move money from our Out to Eat envelope to our Grocery envelope if needed. Discretionary categories are just that, discretionary.
I know the envelope method sounds very simple compared to the spreadsheets, software, and classes companies have developed to teach us how to account for every penny that comes into our homes. If those methods work for you, go for it. But if you’re new to budgeting or have struggled with financial management in the past, I encourage you to give this method a try. It’s a little inconvenient to shuffle cash back and forth, but it’s an excellent way to see what’s coming in, what’s going out, and where it’s going.
Philippians 1:6 tells us, “He (God) who began a good work in you will be faithful to complete it.” This verse reminds me that God promises to teach me everything I need to know to serve him well. I can look back over the course of my lifetime and see dozens of examples of how God has brought people, information, and training into my life just when I needed it most. Money management is one of these areas, and the envelope method has helped us control our finances instead of our finances controlling us.
In my next post, I’ll share two more of the best financial lessons I’ve learned. If you haven’t subscribed to Hungry for God yet, this would be a great time to do so so you won’t miss a single post in the series. In the meantime, why not join the conversation? What’s your best financial tip for saving and spending well? Leave a comment below and join the conversation. If you’re reading by email, click HERE to go to Hungry for God online, scroll to the bottom, and leave a comment.
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