A mother in Boonton, New Jersey used envelopes to budget her paychecks by percentage: food, mortgage, vacation. The speaker applies that system to small business, dividing incoming cash into separate accounts for profit, owner's pay, operating expenses, and capital. It protects against cash-flow swings.
I want to share a little story with you, actually about my mom, and it starts in this town. We are in Boonton, New Jersey. This theater, if you check it out over here, it's called the Darrus Theater, and this theater has a great history because Bob Hope and George Burns and others played here. It's the town I actually grew up in. Well, my mother and I and my family lived right down the street from here, and what you do is use a method called envelopes to manage our money. Specifically, what my mom would do is she worked at a local manufacturer down the street this way, about a mile or two. When she'd come home from work, she would get paid for her hourly work. Sometimes she would work some long hours overtime and she'd get paid a lot of money. Other times she'd work less time because she was sick and she'd make less money. But here's how she worked the envelope system. When the money came in, she would put it into different envelopes. She had 5 or 6 different different envelopes, one for food, one to pay the mortgage, another one for vacation and fun money. Well, she would take this money and divide it up based on predetermined percentages. Then when she went food shopping, she would work with the food envelope. Now here's the fascinating thing. She always had enough money to buy food. Now remember I told you she didn't always work the same amount of hours. So I'm not saying she always had the same amount of money, she always had enough. Money. She would work with the money that she had. And that's how we have to run our businesses. It is the principle of envelopes. It's the envelope method. So when money comes into your business, you don't just have a big clump of money. You take the money that's come in that week, and I understand that it varies, and then you apportion it out to different purposes. Of course, one of those purposes is you apportion the money to profit upfront. But you also apportion money to, uh, paying the owners, operating your business, maybe you have to make a big capital expenditure. Different bank accounts act as different envelopes. So I bet you someone in your family tree did this too. They ran the envelope system. It worked for them. It worked for my mom, and it works for our businesses. Start doing your business now.
