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  • Writer's pictureJacob Curtis

Envelope Power: Managing Money the Old-School Way for Modern Success

How many of you know what the cash envelope budgeting system is? I know my grandparents used it to manage their money. But I would guess today that many don’t even know what it is. That is probably one reason why, as a nation, we have over $17 trillion in consumer debt.

I’ll be honest: I do not use physical cash very often. Most of my transactions are through a debit card. But, unlike most people today, I do not have a credit card, either personally or for my business. You may be wondering, “How is that even possible?” Well, that is what I am going to talk about today.

The Basic Envelope System

So we are all on the same page. The cash envelope system is designed to help you not spend more than the amount of money you make. If you don't have the money, you don't spend it. So before debit cards and credit cards and the internet became a thing, envelopes were used to help people track how much money they had to spend, from the mortgage to bills, to vacation, to groceries and food, to giving back to the community, and even an emergency fund. Each of these categories was represented by an envelope.

So when you got paid, you cashed your check, brought it home, and distributed the cash amongst your envelopes. My grandparents used percentages to determine how much went into each envelope.

They also knew that their income was not consistent paycheck after paycheck, and so compensated for this by making the percentages higher for things like the mortgage and bills.

By having higher percentages for those important envelopes, they ensured that when their income was low, they still had enough from the good months to pay their bills. When things were tight, they had rice and beans; when things were good, they had meat and potatoes.

Credit Cards

Credit cards didn't even become a thing until the ‘60s and ‘70s when over 100 million credit cards were mass-produced and mailed unsolicited to people that the banks had deemed creditworthy. Today, we have racked up over $17 trillion in consumer debt in the United States. And it is this debt that is crushing us.

In Proverbs (22:7, CSB), we read that “... the borrower is a slave to the lender.” And we “Don’t give sleep to [our] eyes or slumber to [our] eyelids. Escape like a gazelle from a hunter, like a bird from a hunter’s trap.” (Proverbs 6:4-5, CSB). In other words, we should be doing everything we can to escape our prisons of debt.

Business Application

So, how does all of that translate into business? When you first started your business, you probably got a loan and opened a checking account. And since that day, you've been using that single account to run your business. All of the transactions come in and out of that bank account: payroll, rent, utilities, debt payments, credit card payments, everything.

And because everything goes through your single bank account, it's hard to keep track of what money you owe to whom and where it all goes each month. So, you probably use spreadsheets, QuickBooks, or other means to help you manage your money.

We did the same thing at Utah Valley Quilting for the first year, but when we realized we were not making any progress in getting out of debt by following the advice of the traditional finance and accounting experts, we knew we had to make a change.

That change involved using a cash management system, specifically, the Profit First system. Profit First is the cash envelope system for business. It has been adapted and modernized a little. Instead of envelopes and physical cash, we use checking accounts and debit cards.

The Foundational Accounts

The six foundational accounts I recommend for any business selling a physical product, including quilt and craft shops, are the INCOME, INVENTORY, PROFIT, OWNER’S COMPENSATION, TAX, and OPERATING EXPENSES accounts.

The purpose of the INCOME account is to collect all the sales coming into the shop and act as the serving tray to the other accounts.

The INVENTORY account is to save and buy inventory for the store. This account should be a factor in your open-to-buy.

The PROFIT account has three purposes: 1: To serve as an emergency fund for the business. 2: To pay off debt. And 3: To reward the business owners for their hard work each quarter (like a quarterly bonus).

The OWNER’S COMPENSATION account is to compensate the owners regularly, providing them with stability in their personal lives.

The purpose of the TAX account is to save and pay for the owners' annual business and personal income taxes. It is not for sales, payroll, or other taxes.

The OPERATING EXPENSES account pays for everything else not specifically mentioned before, like rent, payroll, sales taxes, and utilities.

How to Choose a Bank

In future videos (blogs), we will talk more about the mechanics of using Profit First on a daily basis, but today, I will end with a few thoughts on picking a bank for your accounts. If you can avoid it, you want to pick a bank that does not have a minimum balance and does not charge a monthly fee. Many of the big national banks do not meet these simple requirements. I recommend looking for smaller local credit unions and banks to help you set up your accounts or use the official banking platform of Profit First, Relay Financial.

In March 2023, Profit First Professionals, the organization founded by Mike Michalowicz, the author of Profit First, which certifies Profit First Professionals like myself, announced that Relay is the official banking platform of Profit First. Click the affiliate link below to open your accounts (

Next Steps

Open your accounts today. You need to have six checking accounts and nickname them as follows: INCOME, INVENTORY, PROFIT, OWNER’S COMPENSATION, TAX, and OPERATING EXPENSES. 

Pro tip: If you are sticking with your current bank, I recommend that you use your old original checking account as your OPERATING EXPENSES account.

Another tip: You want all six of these accounts to be checking accounts and at the same bank. If the accounts are spread across multiple banks or savings accounts, the system can be very difficult to use. Keep all six of these accounts as checking accounts at the same bank.

Email me at when you have opened your accounts.

If you need help with this and piecing together financial freedom in your shop, please schedule a call with me by clicking the link below.


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