7 Easy Steps to Build Wealth Using the Envelope Strategy

I thought today would be a great day to share the envelope strategy with you. After this Black Friday weekend, we can start building wealth and rebuilding our spending power.

In one of my recent videos published on YouTube on November 11th, ”The #1 Strategy and Simple Habit to Build Wealth and Achieve Financial Freedom”—https://youtu.be/pVtHgXkTZtE— I talked about paying yourself first as soon as you get paid. After that, you pay your rent and then your bills, with the most important ones first, like loan payments, utilities, phone bills, and credit cards.

Now, when all your bills are taken care of for that week or month, you will be left with what we call your disposable income because it literally means “disposable” – money you can let go of — to enjoy and allow it to be spent on you. You deserve this abundance.

See it as a reward after you save a percentage of your income by paying yourself first, after you have been responsible for all your bill payments, and you have been disciplined about sticking to building wealth. So, this disposable income is a reward.

What is so great about disposable income is that you can create a structure for it in ways that allow you to enjoy this spending power in the long run.

It can continue to help you save money while it enables you to gain clarity around your money and how you spend it. It also allows you to keep track of where your money is going.

What you’ll gain in the end is balance, peace of mind, and more financial freedom.

Today, I want to share the envelope strategy that helps you keep track of your disposable income and enjoy spending freely without guilt. Some of you may already have been using this envelope strategy. That’s great.

Please feel free to share in the comments how you have been using your envelope strategy, how long you have been using it, and how it has helped you save and spend money over time.

This envelope strategy needs to be adopted, especially with the advanced technology in how we pay for things these days. The convenience of tapping with your instant debit card and credit card may be tricky.

How often are you counting the taps throughout the day as you pay for things? If you don’t keep track, you will not know how much money you are spending, how much has been withdrawn from your account, and how many times the bank may charge you with your bank fees.

The way we use our credit and debit cards these days has become unintentional in our spending habits. However, with the envelope strategy, we use the old-fashioned way of using only cash. The benefit of using physical cash is that it creates an intentional spending habit. When you have clarity in how you spend, you can truly enjoy your spending power.

Here are the 7 steps to adopting the envelope strategy:

1. Calculate Your Disposable Income:

Determine how much money you have left after paying yourself first (saving a set amount) and covering all your bills. For instance, if your disposable income is $250 bi-weekly, this means you have $250 every two weeks or $500 per month to allocate funds. Then, you will need to withdraw the amount of your disposable income in cash bi-weekly from the bank.

2. List All Your Expenses:

Write down all the things you typically like to spend money on. Be thorough and honest with this step—it’s critical for understanding your spending habits and making the strategy effective. Consider creating this list in an Excel spreadsheet for accuracy and flexibility, which you can update as your needs, priorities, and life stages change.

3. Categorize Your Expenses:

Organize your list into categories such as Coffee, Hair, Clothes, Gifts, Dining Out, or Entertainment and so forth.

4. Prepare Envelopes:

Count the number of categories and gather an equal number of envelopes. Label each envelope with the category name (e.g., “Coffee”).

5. Allocate Funds to Each Envelope:

Decide how much money you want to allocate to each category. Here, I’ll give you my own example.

I enjoy visiting a coffee shop twice a week and each visit costs $5, I’ll allocate $20 to the “Coffee” envelope for two weeks. The day I plan on going to the coffee shop, I’ll go take the $5 from that envelope.

Now, if I only went to the coffee shop one time intead of two, then I’ll have left over money. Any leftover money at the end of the month can roll over or be reallocated to another category, providing flexibility.

6. Ensure Allocations Match Disposable Income:

Confirm that the total amount allocated across all envelopes equals your bi-weekly disposable income. This ensures you’re staying within your budget.

7. Organize Your Envelopes:

Store your envelopes in an accordion folder to be even more organized with your money. The accordion folder helps keep your categories and funds organized in one place and makes them easy to access.

Example Categories:

• Coffee
• Hair
• Clothes
• Shoes
• Gifts
• Dining Out/Events
• Entertainment

And I put the dollar amount — that is, the amount of money I am putting into the envelope every two weeks —at the top right corner.

By physically separating your funds into envelopes, you’ll have a tangible, visual system for managing your spending.

Over time, this habit keeps your spending under control and encourages intentional financial decision-making, paving the way for larger goals like investments.

Tip: When you go to the bank, ask for all five-dollar bills. Small bills make dividing and putting into the white envelopes easier. They can also help us spend less and be more accurate. You do not have to break a large bill every time.

You might even have extra money from other envelopes by the end of the year. If that is the case, you will have the flexibility to choose how you want to allocate that money or how you want to spend your money.