Pamphlet

This is the entry point to join an experimental budget club on Facebook.  It is assumed you obtained access to this Website from one of my flyers. Please read the following information that explains what this club will attempt to achieve. If you would like to join a local club, please send me your Email Address and indicate which group you need to be in. 

See the four different group categories below, described in the pamphlet. I will then send you the material needed to monitor your cash and some information about me.   

Everything is free, and no outside sales solicitations or sales between members will be allowed.  You do not need to compute your disposable cash to join the club. I will answer any questions you have after you become a member. There are currently two Facebook clubs. One in Harbor City and Lomita, and the other in Marin County.

 You must live in or work in the area that has the club you want to join.  For Example, if you live in Torrance but work in Harbor City, you qualify. If you live in Lomita but work in San Pedro, you qualify.  

If the clubs are successful, I will expand the number of clubs, and you will be able to be in a club where you live and a club where you work if they are different. 

 There will be no request for or sharing of financial information. You will be allowed to use an avatar as a member if you wish. Facebook rules are still being reviewed and will be posted on Facebook when available. 

 You can send your email address to either

SRS644@Yahoo.com

Or; 

StevenRoy44@Proton.me 

 Because the clubs are private, and access to them is private, you need to have a Facebook account. This is a Facebook rule.  I need your email address so I can send you a link that gets you to the club site, and I can then invite you. 

Steven Schioldager

THE PAMPHLET 

This small pamphlet describes the process I use to manage my daily expenses. I call it the Modified Envelope Method. It focuses on how to get reacquainted with your cash.

There is another envelope method on the net, but mine is different. The net suggests you put cash in different envelopes for each category at set amounts, then monitor your spending for each expense category.

My method is much simpler and provides more daily information. My method also incorporates your credit card use if you have one. Access to easy credit can create a major challenge in tracking your spending habits.

I was amazed at how much money I saved after I developed daily contact with the dollars in my wallet.  

By monitoring your cash and controlling your expenses, you can save resources for future investments.

You gain four advantages from being able to save: One, you reduce your credit card debt to zero as fast as possible. Two, to create an emergency fund. Three, to provide savings that can be invested in the future. And Four: You can now get cash back using your credit card if you have one.   

You cannot gain wealth if you spend everything you make.  And you are borrowing trouble (no pun intended) if you spend more than you make.

For many of you, I have created this pamphlet to help you eliminate credit card debt, easily service long-term debt, and free yourself from worry.

My budgeting process is not complicated, but it does require focus and discipline, at least to start.  

                                              Prologue:

You may not own a business, but your life is a business and should be managed the same way an owner of a business manages his or her company.

Most businesses use some sort of accounting system to measure gains or losses from what they sell.  The unit of measurement for American businesses is the dollar. In France, the franc and in Mexico, the peso.  But the value of the currency is expressed by a number.

This number is simply the numbers you use in arithmetic. But the number itself is meaningless.  If someone asks you how much is in your wallet, you could say 5.  Five what?

It could be several things. Of course, you know they want to know the value of what is in your wallet, so you say $5.00. And what is in your wallet is cash. Value is an arbitrary amount that represents what you can exchange what is in your wallet for some item someone is selling.

But if a banker asks you how much money you have in their bank, you know it is not the amount in your wallet but the amount you have deposited with the bank.

How many can answer this question without looking online or obtaining a close approximation by looking at their last bank statement? Knowing your cash is the focus of my budget process. Knowing your cash is not just knowing how much you have, but the practice of integrating it into your daily activities.

You might argue that you are not a business. I disagree that you are not a business.

Assume a businessman sells apples through a vending machine. The vending machine posts a sign that says apples are $1.00.  The vending machine has 20 apples; multiplying 20 apples by $1.00 equals $20.00. The inventory of apples in the vending machine is 20 apples at $1.00 each.  The businessman paid 50 cents for each apple, so if all the apples are sold, he gets to have a net income of $10.00.  $20,00 less what he paid for the apples, $10.00, equals an income to him of $10.00. The $10 is the money he makes for spending his time managing vending machines.

If no apples are sold and the apples go rotten, the businessman loses the costs of the apples plus the income he expected to receive. 

Again, you say I am not a business; I do not sell anything. Again, I  disagree.

You are also a businessperson; your inventory is your time. Like the apples that can go rotten, you do not want your time to be wasted

If someone asks you, how much are you paid? You might answer I am paid $15.00. Now we have a number assigned to something measurable, but it does not answer the question. Because you are selling your time, the answer must be related to time. I am paid $15.00 per hour.

If, at the end of the day, all the apples in the vending machine go rotten and you also miss a day of work, then you lose $120.00, and the businessman loses $20.00

Of course, you would argue you did not pay $120.00 for your time. This is true, but the businessman sits at home waiting for his vending machine to pay him. He is also losing his time. The business is paying him for his time to mind the vending machine,

So while you work for an employer by selling your time, the businessman sells his time to his company.

The reason for all of the foregoing is to emphasize the requirement to manage your $15.00 an hour to the same level of control the businessman manages his cash investment in apples.

                        This is Phase One of a two-phase Pamphlet.

This phase explains what group you are in and how to calculate your cash allowance.

Once you forward your profile status, I will send you the worksheet or Excel program along with instructions in Phase Two for your group.

The next step is to determine your general financial profile. Because many of you are in different economic situations, I have divided the profiles into two main groups, with several subgroups. 

It is assumed that both groups have a primary checking account. You need this to access cash either by debit card or check.

Before you can apply the envelope method, you need to know which group you are in. Some of the procedures are different for each group. You only need to use the procedures used by your group

                           . Main Profile Categories 

Group A: No Credit Cards 

Group B: One or more Credit Cards

 Sub Groups

Group A: 

For those with no credit card or credit card debt.

A1: No access to a Microsoft Excel program.

A2: Have access to a Microsoft Excel program

Group B:

 You have a credit card. You may or may not have a balance due

B1: No access to a Microsoft Excel program.

B2: Have access to a Microsoft Excel program.

All groups are assumed to have a primary checking account. However, some members may not have a checking account and are paid in cash, or they go to a check-cashing facility. They are in group A. 

Depending on the level of your debt and how the cards are paid off, it creates a much more complicated situation. If you are in Group B, go to Amendment 12 and read it before continuing.

Amendment 12 also explains how to enter a transaction when you use a debit card instead of cash.

                            Modified ENVELOPE METHOD.

The increase in online resources to manage my money has distanced me from my daily spending habits.  The ease of flipping out my debit or credit card is habit-forming.  

There are many books and computer apps on budgeting. What I propose here pretty much follows these books and software programs. Most of us just look to see how much cash we have from time to time and guess what we will have available. Some are better at it than others. Some banks’ checking deposit information may provide you with many, if not all, of the features I discuss below.

It is not easy to have accurate control of your finances. Banks make money based on most depositors' inability to control their spending habits.

It is also not easy to create the accounting controls necessary to stay on track. What I propose may sound challenging to create because there are numerous moving parts. However, with a little effort to follow all the numbers, once you have what I have created, the method is easy to follow.

What is described below is for the individual. If you are married or share your finances with others, you must modify what I propose to suit your requirements. It is also limited to taxpayers who do not itemize federal tax deductions.

My method is based on you being employed by others. It is not for the self-employed or the retired. These require a different set of requirements.

If at the end of the month, your cash position has improved and you can pay off the balance of your credit card, you do not need to read this.

So, if you are already comfortable using other methods of control, you can give this pamphlet to someone else. Or put it in the recycling.

The following is divided into two phases.

Phase one explains in 11 simple steps how to obtain the information needed to manage your money.

Phase two explains how to use the information with examples of how to execute daily control of your money.  This is my envelope method.

 You do not need a computer to achieve this, but using an Excel program reduces the tasks required to stay informed. The Excel model I use is free to anyone wishing to use it.

                                 Preparation:

Obtain 12 Envelopes for monthly receipts; add one envelope if you have a debit card or checking account; add another envelope if you have one or more credit cards, and add one more envelope if you obtain another debit or credit card to do a separate food budget discussed under step 8.

You should read the steps in phase one, but you do not need to do the calculations if you can estimate the amount you will need in step 11.

Phase One 

For each step, an addendum is located at the end of the pamphlet. You do not need to read the addenda to use my system. However, those with Credit Cards should read Addendum 12 if you haven't already. The addenda add more detail but may not be relevant to your situation.

Step One:

Obtain a copy of your last pay stub. An example is shown at the beginning 

Set a control period. These are usually the days you work before you get your money. It will most likely be weekly, twice a month, or monthly.

Some companies have a 13-week accounting cycle because there are 52 weeks in the year, and 52 can be divided into 4 periods of 13 weeks. You have to calculate your cycle.

Step 2:

Write down your gross pay. If you are paid by direct deposit and do not receive a check or pay stub, you will not see a gross pay number. Look at your bank statement and write down the amount. This will be your take-home pay.  You can skip step 3 and go directly to step 4.

Step 3:

Subtract all withholdings from gross pay. This should be the amount you get to take home. Or, look at your bank statement to see how much your employer sent you. The take-home on your pay stub should be the same as the money deposited by your employer.

At the beginning of the pamphlet is a copy of a one-week pay period.   There are many variables among individual pay stubs; it is up to you to decide what information you may require. For example, I could not find a pay stub sample that included IRA or 401K contributions.

See Above

The information in this pay stub for a bi-monthly pay period will be used to demonstrate how to calculate take-home pay from Step 3 above and also to calculate all steps required to obtain cash using the envelope method.  See the example following step 11.

Step 4.

If you have other income from any source, add it to your take-home pay. See Addendum 4 for possible sources.

Step 5:

Make a list of all fixed payments you make each month. Example: rent or mortgage payments. Student loans, insurance, etc., minimum credit card payment, or retirement contributions if not deducted from the pay stub. Total the amounts. Addendum 5 has a more exhaustive list.

Step 6:

Subtract this amount from the amount in Step 4 and write it down

Step 7:

Make a list of partially fixed items, like estimated utilities. This is the most difficult category to estimate because sometimes you control the cost, and sometimes you don’t. Addendum 7 gives some examples. Subtract this amount from the balance in step six.

Step 8. Special optional control,

Open another checking account and debit card. If you qualify, you should also get a separate credit card. Estimate your monthly budget for food.

Either of these cards will be used to purchase home-consumed food and only food. I recommend going to Addendum 8 to learn why I created this sub-budget control.

However, if you cannot or do not want to get another card, you can run the food budget through your primary checking account. This is a little more labor-intensive if you have a lot of payments going out of your checking account. Instead of using your checking account for food, you can use the other envelope method discussed on the net of putting the food budget into the food-only envelope.

Step 9.

Calculate the cash to be used for the daily budget. This amount will be used to determine your daily cash allowance. See the example below.

Step 10:

On 12 of the 15 letter-size envelopes, label them January through December. Label the 13th envelope Debit Card receipts and the 14th envelope Credit Card receipts.

Envelope 15 is the control for your food budget; it will be a separate control from the envelope method. This envelope will be used to support your primary account if you do not obtain additional cards exclusively for food. The food budget differs from the other purchases because it is calculated monthly, while the Modified Envelope Method is based on your pay period.

Step 11:

Determine your daily spending amount. This is the most important step in the process.  It is calculated by dividing the amount you have left over after subtracting all the amounts you have calculated in Phase one iby the number of days in the month.

Example

Assume your gross pay is $4,250 a month and your take-home after deductions, fixed costs, semifixed costs, and food allocation is $850.00. You can divide by the number of days in the month or use 30.5 as the divisor.

 Using 30.5 eliminates the variance in the number of days in a month and has only a small impact on the results from month to month. You can choose which number to use. However, the daily purchases will use the actual days of the month you are in.

The 30.5 is only used to establish the average daily amount available. For a 30-day month, the daily cash allocation is $28.33; 31 month is $27.42, and for February is 30.36, not counting leap year.  Using 30.5 gives a daily allowance of $27.87. More on this in Addendum 11.

EXAMPLE USING THE STEPS.

The take-home amount is taken from the pay bimonthly pay stub above. I have not included overtime or a bonus because these are not guaranteed monthly payments.

However, the offsetting taxes are included because of the difficulty of calculating the amount attributed to overtime and bonuses. This is a small conservative hedge that benefits you. The amount not included easily covers the taxes and should accumulate into your primary checking account.

Step 1: I am paid twice a month, on the 15th and the last day of the month.

 Step 2: Gross pay:  $5,920 a month.  ($2,960 on the 15th and the 31st (30th))

Step 3: Other monthly income $42.00 not shown on pay stub.

 Step 4: Whatever you earn. However, it should be reduced by your tax bracket unless tax has already been taken out. If you get $400 before tax and you are in the 12% tax bracket, reduce the amount by 12%.

 How total withholding was calculated. Withholdings: Federal Taxes $434.57, FICA $196.11, Medicare $45.86, State Taxes $69.35.

Total withholding: $745.89 from $2.960 (bi-monthly gross pay )

Bimonthly take-home $2,205.11. Rounded to $2,205.00

You will notice that the pay stub says take-home is $2417.11. The difference is the overtime and bonus payments I did not include. Many of you will not have this income, but I include it here to show what to do if you do.

You are welcome to include overtime and bonus in your take-home, but you may overstate your future income if it is not consistent and the envelope method will not reflect reality, Better to let the bonus and overtime accumulate in your primary account and then at the end of the year you have some money for the Holidays or a little hedge if you underestimated your income taxes owed.

However, before we go to step 5, you need to double the take-home amount because you are paid twice a month. In step five, we calculate monthly expenses, so you need to have the full month's income to pay for step 5.

This will be $4,410.

Step 5:  The numbers here are made up by me. There is no actual data available for fixed expenses.  Fixed expenses are rent of $1,800 per month, Insurance payments of $150, a Minimum Credit card payment of $60, an auto loan of $295, a Gym membership of $65, and an Internet fixed amount of $40. See Appendix 4 for other possible fixed expenses.

Total $2,410

Step 6: $4,410 minus $2.410= $2,000

Step 7: Water and power:  $120, Internet $65, Other $45,

Total $230

Step 8:  Monthly food budget $400.

Step 9: Subtract totals from steps 7 and 8 from the balance in step 6.

$2,000 – ( 230+400) or $630 = $1,370. Use this amount to calculate the daily budget for each period. For example, for January 31 days is the daily budget of $ $1,370  is divided by 31. This amounts to  $ 44.19

So, in the following template to begin Phase 2, I begin period one with $44 times 15 or $390.  I will draw $400 from my checking account because most ATMs use $20.00 increments, but $26 will be used in the daily model.

 On January 15th, I will see how much cash I have left over. Then, I will begin period 2 with another $400 and see what is left over at the end of the month.  Phase 2, discussed next, is the reason I use this model and what to do with your results. 

                                 Part Two:  How to fill in data for your group

Group Instruction here for accounting entries

ADDENDA

Addendum 1

If you have access to the internet and type in “Pay Stubs,” you will find many examples; I only included 2 in this pamphlet.

Addendum 2

If you have online access to your accounts, you can get the deposit information there.

Addendum 3

Every state has different withholding amounts. However, Federal Income Tax (FIT) is usually set at some fixed rate based on your income and status. FICA and Medicare are established as a percentage of your income with a fixed limit.  Sometimes there are city or county taxes.

Addendum 4

Other income can be of two types: Annuity income and /or one-time cash payments.

Annuity income can come from interest on bank time deposits or bond holdings, stock dividends, and other annuity income. Second job, in which case all 11 steps are repeated for the second job unless you are paid in cash: One-time cash receipts can come from the sale of an asset, a gift or overpayment of taxes, for example

Addendum 5

Fixed payments made each month are subtracted from your take-home pay. These amounts come out of your primary bank account. They may be auto debit or payments you make by cash, check, or debit card. Do not mix the cash taken from the primary account to pay fixed expenses with the cash you will use for the envelope method.

One reason fixed expenses are not run through the Envelope method is that you have to pay these amounts monthly, and you do not have access to the money for other purchases unless you do not make a payment.

 If you find it necessary to make a required fix payment with your credit card, this is discussed under Addendum 12.

A second reason is that bank statements rarely close on the last day of the month. So the information in the bank statement does not match your cash budget schedule.

Reconciling these differences every month between your budget template and the statement is complicated and a lot of work. Subtracting these from take-home pay is simple.

This is a list of some of the fixed costs that may come out of your take-home pay.

1: Rent: Usually paid  at the beginning of the month

2: Mortgage payments: Usually paid at the end of the month. The mortgage payment has two components: interest expense and principal. While interest expense is a direct loss the principal amount reduces the debt and increases your home equity,

This transaction is not fully accounted for in the Envelope method. We are only concerned with the availability of cash. So you subtract the full amount of the mortgage payment from take take-home pay,

3: Car payment(s)

4: Auto Insurance

5: Any other insurance payments, Life, Health, Renters,  and  Homeowners

6; Student loan payments

7: internet, media, cell phone, subscriptions

8; HOA fees

9: Gym fees

10. Child Care

11: Court-ordered payments

12:  Minimum Credit Card Payments. These can be bank cards or cards issued by businesses such as Loews or some furniture stores.

13. Whatever else you have to pay monthly.

Addendum 6

Step 6 calculates the balance after subtracting the total in step 5 from the take-home pay from the addition of steps 3 and 4.

Addendum 7

Semi-fixed costs are monthly expenses that change based on usage.  Water and Power. Winter heating, summer cooling, and watering are the most common. These payments are also run through your primary bank account. Because these can have a large swing in amounts, I suggest you do not budget for these items but just review the amounts paid each month to see the effect on your available cash.

Or to be conservative, you can add some estimated amount to fixed payments, then, after a year, see if the total actual payments match the total fixed payments. Instead of a year, you can use a 90 or 180-day cycle, but this is more work.

There is some degree of control you have based on what comfort level you want to pay for.  No air conditioning in summer, no heating in winter. Water usage also has room for cost savings. You decide usage and how to budget for these expenses. 

Addendum 8

The reason for a separate food budget is the advantage of trade-offs. No other major category provides the daily opportunity to save money like food. The following example is for demonstration only; I do not recommend it.

Your body needs fuel just like your car. Gasoline for your car is like calories for you. Just like every car has a miles per gallon requirement based on MPG, or terrain, your body needs calories depending on energy demand.

Everybody is different, so you have to calculate your calorie requirements. I am not suggesting a diet here, but it will provide you with a daily cost of maintenance, which you are free to adjust

The average calorie requirements for females are 1,600 to 2,400 per day and for males, 2,000 to 3,000. I am using 2,000 a day as the baseline for the following calculation, 

One ounce of uncooked rice has about 100 calories or 1,600 calories per pound. So, 2,000 calories requires 1.25 pounds of uncooked rice. Non-specialty rice costs between $0.75 to $1.25 per pound. So your daily fuel cost is between $0.94 and$1.56.  I will use $1.25 per day.

Fillet Mignon at a high-end market costs about $35 per pound. Fillet mignon has approximately 1,200 calories per pound or 75 calories per ounce at  $2.20 per ounce. You need 28 Ounces to get 2,000 calories, which equates to $61.60 per day

So your annual cost of rice is about $460, while your Fillet Mignon is about $22,500. All foods have a calorie cost trade-off off and it is here where prudent shopping can save you enough to pay off your credit card.

Now for the kicker. Going out to eat costs you about 5 times more than if you cook at home. This does not include travel costs. You have a choice to include going out to eat in your primary account, include it in your food budget, or run it through the envelope method. My suggestion is to run it through the envelope method to create shock value. At least until your credit card is at zero. It is very easy to go to a restaurant and pay with your credit card. The whole focus of this budget is to avoid this practice.  

Once your credit card debt is at zero, you can use the card to pay for everything if you can pay off the balance every month.  This gives you an extra 2% in non-taxable savings.  See discussion on Credit card debt, Addendum 15

Addendum 9

This is the same information in the text, only it is broken down in the text.  Subtract totals from steps 7 and 8 from the balance in step 6.

$1,445 – ( 230+400) or $630 = $815. Use this amount to calculate the daily budget for each period. For example, for January 31 days is the daily budget of $ 815 is divided by 31. This amounts to  $ 26.30.

$1,445   From Step 6;  Fixed payments subtracted from take-home pay.

Minus $230 Semi fixed costs like water and power,

Minus $400  Monthly food allocation.

Equals $815

Addendum 10

This is pretty easy to understand. The envelopes from January through December contain the receipts of your daily cash expenditures.

The debit card envelope #13 and the credit card envelope #14 contain receipts from those expenditures. You also have the option of taking the cash out of your daily allocation and putting it in their respective envelopes. This is fully explained in the Credit Card Addendum

Addendum 11

Calculating the amount of currency you have to spend daily is the purpose of this budgeting tool

From Step 9 $815 from above, the Amount available each month to put in your wallet

Divided by $818 by 30 days = $27.17: by 31 days=26.30; by 30,5days =$26.72; or by 28 days=$29.00

The last thing to do is determine how often you wish to obtain your cash from the ATM. For example, the Full $815 for 30 days, 31 or weekly. This will depend on how much you have in your primary account each month. I cannot recommend any particular amount or period because everyone’s paycheck clears the bank on a different day.

Then you decide the period you wish to monitor,

Addendum 12

Debit and Credit Card discussion. Some of this explanation is repeated in Phase Two.

Debit Card: Place the Receipt and cash in the Debit card envelope and deduct it from daily expenditures.

Credit Cards. This causes most of the trouble, and you should read this before engaging the envelope method. It requires more steps to control your spending. It also creates a reward once the cards are under control. I have added a lot more information here. If you do not have credit cards, you do not need to read this.

The following is a short description of how accountants prepare financial statements. Because you use credit cards, the ability to track your budget becomes infinitely more complicated.

 If you have $10.00 cash in your wallet, or have a bank account and a debit card with at least $10.00, you can go to Starbucks and buy a latte for $5.50,  This will either reduce the cash in your wallet or reduce the balance of your cash in your bank account, But if you pay with a Credit Card. You still have the $10.00 in your wallet or the original balance in your bank account. 

When accountants prepare a financial statement, it has two basic parts. One is called the Balance Sheet, and the other is the Income Statement. The Balance Sheet is for a specific day and represents what you own (called assets, like the balance in your bank account) and what you owe others  (liabilities, like the latte the bank bought for you) on that day. 

The Income Statement for businesses records the total sales and subtracts the total expenses to show a profit or a loss over a period of time. Usually a month.

A full Financial Statement for one month would be: The Balance Sheet at the end of business on the last day of the prior month, the total income and expenses for the whole month, and the amounts on the Balance Sheet on the last day of business of the current month.

 The accountant's job is to make all the accounting entries that affect the changes from the end of the prior month's Balance Sheet to the Balance Sheet at the end of the current month.  After all entries are made, the Income Statement goes to zero at the beginning of the first day of the next month. Then the accounting process starts again,

This subject has a thousand variables and is way beyond the purpose of my Envelope Method. Should you wish to see how this works in more detail, I have created the Short Book, which explains how accounting works. However, because the Credit Card affects both your balance sheet and your income statement, it was necessary to provide a little background.

My envelope method is mostly concerned with the Income Statement. You do not own a business, but you have income ( your salary) and expenses (everything you buy with your salary)) What you have left over if you spent less than you made is cash savings.

Enter the Credit Card.  The Credit Card has two parts. The amount you borrowed and the interest you have to pay.  But the balance owed on the Credit Card may or may not be part of your budgeted expenses; It is, however, part of your purchases. Here is where all the trouble starts.

I said that your salary is part of the Income Statement, but that is not entirely true. When you get paid, the cash goes on to your Balance Sheet. Cash is something you own. During the creation of the 11-step process, you eliminated all your fixed and semi-fixed costs. This will reduce the amount of cash you have available on your balance sheet to purchase other items. I also created a separate system to account for food costs. This further reduced the cash you have left over to buy things.

The problem starts when you use your credit card to buy things, and you may or may not have the cash to pay off the balance when it is due. 

Here are three examples of credit card usage.  

1: You have the cash now and will continue to have the cash to pay off the balance before it is due. This is where you always want to be because you can get cash back using your card rather than paying cash up front.  This is the goal you are striving for if you have credit cards.

2. You do not have the cash now, but expect to have it before the balance is due. This means you have good control of your money and can time the receipt of cash before the balance is due. This has the same benefits as number one above, but has a risk that you do not get the money in time, and will cost you interest.

3. You have a balance on one or more credit cards, and you are making payments because you do not have the cash now and do not expect to get enough to pay off the debt before it is due.

 This is a huge profit center for banks from those who use credit cards. The required amount of principle paydown is very small, usually 1% to 3% of the outstanding balance, but interest expense is very high. The average credit card interest charge is about  18% per annum.

How to incorporate credit card purchases into the envelope method. 

The envelope method focuses on cash-only purchases. However, sometimes a credit card is necessary for various reasons. The following only applies if you have no credit card debt but want to use your credit card. It makes no sense to buy with a credit card if you already have outstanding debt on one or more cards. The objective is to reduce the debt. This statement does not apply to emergencies, which should be covered with payments from your primary checking account. 

The purchase is made for an item to be consumed and paid for within the billing cycle of your card.  Here, you handle the purchase as though it were cash. Only you put the receipt and the cash amount in the Credit Card Envelope. This effectively covers the amount required to pay for the card. When the card comes due, you pay out of your Primary Checking account and include the cash in the Credit Card envelope as part of the next period's cash requirement.

 For example, if you have allocated $12.00 a day for 30 days ($360.00) and you are on a 15-day cycle. The cash required for the second cycle is $ 180.00. This is what you would normally draw from your ATM. But if you used your card for a $60.00 purchase, and you put the receipt and the $60.00 in the Credit Card Envelope, then you only need to draw out $120 from the ATM and take the cash from the Credit Card Envelope and put it in your drawer or wallet.  This process reduces the amount drawn from our Primary account and is available to pay off the card and take the 2% cash back credit.

You may need to make a credit card purchase that exceeds the billing cycle.  Suppose you want to take an art class that costs $ 180.00 but continues for 10 weeks. This purchase is equal to 15 days' cash allocation, but it is consumed in the future. How this is accounted for is explained in Phase Two