Have you ever felt that no matter how hard you try, sticking to a budget is like trying to hold water in your hands? Do you struggle with mental math at the cash register wondering if your new jacket exceeds the 7.37% of monthly income line item you have on your spreadsheet budget? Enter the (electronic) envelope system – a method that’s as tactile as practical, ensuring that every dollar is corralled for a specific purpose. Let’s dive into why the envelope system might just be your budgeting breakthrough!

What is the Envelope System?

The genesis of the envelope system was a straightforward way to manage your monthly budget by using physical envelopes to represent different categories of your spending. It’s as simple as labeling each envelope with a category like groceries, entertainment, or utilities and only spending the cash you’ve allocated for each. Many also believe that handing over physical cash increases the friction of transactions and prevents frivolous spending. In today’s technological environment, you may find it impractical to visit a brick-and-mortar bank to withdraw large sums of greenbacks when DFAS thanks you for your service on the 1st and 15th of each month. Enter the Electronic Envelope system.

What is the Electronic Envelope System?

Many of the large banks and credit unions now have user-friendly mobile banking apps that bring the bank teller to you. Customers can view balances and transfer funds between accounts in the palms of their hands. By establishing multiple individual and joint accounts, you can create “envelopes” to shuffle your funds into purpose-specific accounts. I use USAA for most of my banking, and there is no charge for opening new accounts. Between my own accounts and the ones I share with my wife, I have 11 accounts. I also have a 12th account with a High Yield Savings Account where we park our emergency funds (out of sight, out of mind, and a 5.00% APY!).

Why so many accounts?

Each account has a purpose. My LES is directly deposited into the main account each payday. From there, I transfer funds according to the Cash Flow Plan I developed with my wife. Your unique budgeting needs and goals dictate the number of accounts and amounts to fund them with – but that is a wholly different topic. I will share my basic structure.

Types of Accounts

Our Joint Checking account is funded to cover our fixed, recurring shared bills such as mortgage payments, electricity, insurance, etc. There are a total of 15 expenses that we pay out of that account each month. Over time, we learned how much we need to allocate for those categories and generally adjust the amounts each year in January. We leave a small buffer of funds in that account just in case a bill is larger than anticipated.

Another account is our Miscellaneous Spending account, which is for variable spending, such as groceries and the odd expenses that pop up for our children. We tracked our grocery bills for a period to help set a baseline for how much to contribute to this account, and now we use that limit as guardrails to control our shopping.

Next, we have a checking account titled Rental Checking into which we mobile deposit the rent checks from our tenants. We use these funds to pay the mortgage and any expenses related to the rental property, which makes filling out Schedule E much easier during tax season.

We use separate savings accounts for separate goals. Foremost is our emergency fund, which is held outside of USAA. It is funded with several months’ worth of expenses, and given the larger balance, we wanted to take advantage of the highest APY. Having this account largely out of sight also reduces our temptation to spend the money on non-emergencies.

We have a short-term Joint Savings account and contribute a small amount to each paycheck to handle unexpected expenses. Finally, we have a Sinking Fund account to make small contributions throughout the year for larger planned purchases (mainly summer camps for our daughters).

After Set Up

Once the framework is set up it requires just 2 minutes each payday to make the established transfers. I have complete autonomy to spend the remaining funds without guilt as I have already:

Funded my retirement goals under my TSP and Roth IRA contributions first (alongside my wife’s 403(b) and IRA contributions).
Funded our necessary savings and emergency funds.
Set aside the funds to cover my liabilities and expenses.

Why Use This System?

Disciplined Spending: Once your primary/remainder account is empty, your discretionary spending is done until your next paycheck, which forces you to stick to your budget with clear limits.

Immediate Feedback: You get a real-time visual representation of your remaining budget, helping you adjust your spending habits on the fly. You won’t have to factor in upcoming bills with your spending habits as you will have already sequestered that money aside during your transfers.

Savings Incentive: Any money left over in an account can be redirected to savings/investments, debt repayment, or rolled over to the next period. This is an immediate reward for frugal spending.

How to Implement the Envelope System

Determine Your Categories: Start by listing your regular expenses such as rent, food, gas, and entertainment are common categories, but tailor to your lifestyle. Determine the categories you need and contact your bank to open those accounts. If you share expenses with a partner, make sure they have access to deposit and withdraw.
Set Your Budget: Consider your income and expenses to decide how much to allocate to each account. Be realistic and adjust as needed, or at least annually. Divide the annual amount into 24 (or 26 civilian) pay periods.
Fill Your Accounts: After each paycheck, fill your various accounts with budgeted amounts.
Spend Like You Have a Plan: Stick to the limits you have set for each category and fund. It can be as simple as using a dedicated credit card to transfer funds out of the appropriate category. Then park them in a short-term savings account until the bill is due. Bonus: you can accrue credit card reward points but avoid finance charges by paying in full each month!

Wrapping Up

The envelope/transfer system isn’t just about controlling spending; it’s about taking charge of your financial future. It reminds you of your goals and the path you’re taking to achieve them. It takes the guesswork and pressure out of discretionary spending and paying bills while working towards other financial goals.

Remember, financial freedom isn’t an overnight achievement. It’s the result of consistent, mindful decisions. Having a plan for each dollar may seem small at the moment but can build into tremendous savings over time.

How Do I Optimize This Strategy to Meet My Goals?

Hopefully, this article has given you ideas for what kinds of accounts you want to establish and how to divvy up those DFAS deposits. At the end of the day, the system is just a framework for you to apply your unique situation.

If you need help figuring out how your goals, expenses, and petty funds should be configured, it may be time to tag in a trusted Financial Planner. Reach out and connect with an advisor at the Military Financial Advisors Association!

Navigating the many GI Bill For Guard and Reserve options

I have been a member of the Air National Guard for almost 25 years at the time of writing this article. During that time, I have served as a Drill Status Guardsmen, a Title 32 Dual Status Federal Technician, and now as an Active Guard Reserve (AGR). Each status has had an impact on the education benefits I was eligible to receive. I’ve used the G.I. Bill towards my own education. I served several years as a Retention Office Manager where I helped unit members apply for, use, and transfer G.I. Bill benefits. Now I talk to military members and veterans about ways to optimize the GI Bill for Guard and Reserve benefits as part of a holistic Financial Plan. If you are in the reserve (guard) component it is important for you to understand what you may be eligible for and how to weigh those unique options.

Which chapter of GI Bill for Guard and Reserve are you on?

When I strike up a conversation about education benefits, service members will often proudly claim “I have THE G.I. Bill”, and get confused when I ask, “Which G.I. Bill?” Many folks are unaware of just how many different G.I. Bill options exist. The genesis of the G.I. Bill began with a single program known as the Servicemen’s Readjustment Act of 1944 following World War II that sunset in 1956. Congress has since created many new programs of educational benefits for veterans under Title 38 of the United States Code with each unique program found in its own Chapter, enough to fill an entire book! You can go right to the source at the VA site but I’ll give you a brief overview.

Chapter 1606 Montgomery G.I. Bill for Selected Reserve

This is a free benefit that members of the Guard and Reserve become eligible for with a 6-year service commitment.
A tax-free monthly stipend is paid directly to the member based on course load. Rates can be found here, currently $439.
Can be stacked with an additional “Kicker” offered by the service component if eligible.
Use or lose. Once you separate you can no longer use this benefit and will lose it forever after a one-year break in service.
You can still obtain eligibility for this benefit if you started your career on Active Duty and then transferred to a reserve component and agree to the service commitment.

Chapter 1607 Reserve Educational Assistance Program (REAP)

Another no-cost benefit, the precursor to the Post 9/11 GI Bill
Tax-free monthly stipend for reserve members that served on Title 10 orders after September 11th, 2001.
Rates were based on CH 30 MGIB and length of service:
- 40% of MGIB for 90 days up to 1 year.
- 60% of MGIB over 1 year but less than 2 years
- 80% of MGIB for anything over 2 years on orders
Could be stacked with Kicker if the member already established eligibility.
This program was closed to new enrollments in 2015 and sunset for current enrollments in 2019.

Chapter 30 Montgomery G.I. Bill Active Duty (MGIB-AD)

Eligibility is based on Active Duty, AGR status, or lengthy mobilizations, after at least 2 years, with some unique other requirements.
Sorry, this one will cost you $100 per month for a year ($1,200).
A much more generous tax-free monthly stipend is paid directly to the member. Rates can be found here, currently $2,210.
You can supercharge this benefit with an additional “buy up” with an 800% ROI!
- $20 will get you an additional $5 per month ($180)
- $600 will get you an additional $150 per month ($5,400)
Can be combined with a Kicker incentive.
You could continue to use this benefit after you are separated from service for up to 10 years.

Chapter 31 Veteran Readiness and Employment

Eligible for benefits with a service-connected disability rating of 10% or more as a veteran or 20% or greater while still serving.
Up to 48 months of entitlement to the various programs.
This does not diminish entitlement from any other chapter of the GI Bill you may still have, but the use of other VA education programs is deducted from CH31 VR&E entitlement.
Provides a suite of rehabilitation programs found here.
Dependents may qualify for benefits as well.
Also provides a subsistence allowance, rates can be found here.

Chapter 32 Veterans Educational Assistance Program

This one is for the old timers, who must have entered active duty between 1977 and 1985.
The government matches $2 for every $1 contributed from military pay, up to $2,700.

Chapter 33 Post 9/11 Veterans Educational Assistance Act of 2008

Andrea Clark, CFP®, AFC® published a great, in-depth post about this benefit here.
A free benefit with tiered payments based on the cumulative amount of qualifying active-duty time after 9/11/2001.
Tuition and Fees up to 100% for public in-state institutions, paid directly to the school.
Basic Allowance for Housing (BAH) based on the school’s zip code or separate rate for online-only programs.
Tax-free book stipend paid to users up to $1,000 per year.
Additional coverage under the Yellow Ribbon program for participating schools once the 100% tier is reached.
The only benefit you can transfer to dependents, but is limited by time in service requirements and incurs a service obligation.

Chapter 35 Survivors’ & Dependents’ Educational Assistance Program or Fry Scholarship

Eligibility is for dependents based on the 100% service-connected disability or line of duty death of the veteran after 9/11/2001.
DEA is paid directly to the dependent.
Fry Scholarship is similar to CH 33 Benefits.
You cannot use this benefit as a servicemember, but make sure your family is aware of this program in the unfortunate event they become eligible.

Chapter 36 Mars Colonist College Fund

Ok, I made this one up! The point is, you never know when a new program might be implemented based on the needs of the DoD that could be more valuable than the one you may be using now!

Wait, 36 + 36 + 36 = 48?

Each chapter of the GI Bill you establish eligibility for comes with 36 months of entitlement. In my case, I was eligible for three different chapters of the GI Bill (and could have bought into a fourth), so I could have amassed 108 months (or 144) right? Unfortunately, you cannot collect them like baseball cards so each time you apply for a new chapter of the GI Bill you must relinquish (permanently) the current version of the GI Bill you are using. The good news, you can start over with up to 36 months of the new GI Bill. The bad news, you cannot exceed 48 months of total entitlement when the different chapters are combined.

This limitation is one of the key planning factors when you run a scenario analysis for what GI Bill benefits to use, how much to use, and when to use it. I’ll show you a very personal example.

My story

A young 17-year-old Sam Lewis joined the Delaware Air National Guard (DANG) in 1999. At the time of my enlistment the State of Delaware paid up to 100% of in-state tuition for Delaware National Guard members to attend public schools and an equivalent amount for private schools. I was eligible for Chapter 1606 GI Bill ($276 per month) once I graduated from Basic Military Training. About a year into my contract the Kicker was introduced, and I agreed to extend (basically restarted my 6-year commitment) and would now earn another $350 tax-free per month. So, I was getting my school bill paid 100% plus $626 a month tax-free plus my regular drill weekend checks. Somehow, I always found a way to spend all of it. It can’t get any better than that right?

I ended up getting activated in 2004 and spent just shy of a year on orders including a deployment to Iraq. When I returned to civilian life and school I was now eligible for Chapter 1607, so I relinquished my remaining 14 months of benefits under Chapter 1606 and now received $690 per month, still topped off with the $350 Kicker, 100% Tuition Reimbursement, and now E-5 monthly drill check. Somehow, I always found a way to spend all of it. It can’t get any better than that right?

I used 13 months of benefits to finish my bachelor’s degree in 2007 and did not give much thought to the remaining months of entitlement. I was unmarried and childless and not giving adequate thought to future planning. I also became a full-time Title 32 Dual Status Federal Technician that year. Although I worked full-time and wore the uniform every day, I was not eligible for the Chapter 30 GI Bill at the time based on my status, although some folks I worked alongside were. I heard mention of the Post 9/11 Veterans Educational Act of 2008, but it sounded like an Active Duty program or a benefit for folks that had deployed much longer than I had, and in my naivete, I did not investigate further.

In 2012 I became a Title 32 AGR and had to make an election within the first two weeks on a DD 2366 on whether I wanted to buy into Chapter 30 MGIB or not. I had no immediate plans to return to school and did not want to pay $100 a month for a limited benefit that I may never use, so I declined it.

In 2013 I was selected for a promotion to a new position as the Retention Office Manager (ROM) for my wing. I would help members with career irritants, explore their career change options, pay them large sums of bonus money, and help them understand and access their educational benefits. I quickly had to become the resident expert on all things GI Bill. I also married the love of my life in 2013, and quickly had to become a future planner!

The more I learned about the GI Bill the greater appreciation I had for how rewarding the benefits could be. In 2011, the DoD made the determination that Title 32 AGR would now count towards establishing Chapter 33 Post 9/11 GI Bill benefits. This is the only benefit that could be transferred to my dependents, known as the Transfer of Education Benefit (TEB). With my current AGR time and prior periods of mobilization, I would be eligible at the 100% tier. I quickly made the election to relinquish my remaining months of CH 1607 for CH 33. Sadly, I would only have 11 months of entitlement remaining before I reached the 48-month limit.

Since I was already at 14 years’ time in service, I quickly transferred all 11 months to my wife as soon as she was enrolled under me in DEERS. She is a law school graduate with no plans to go back to school but I wanted to start the four-year service obligation as soon as possible to get it over and done with. We welcomed our twin daughters into the world in 2016. Again, as soon as they were enrolled under me in DEERS I “took back” 10 months of benefits from my wife (she agreed) and gave each daughter 5 months of benefits. There is no new service commitment required, that is a one-time obligation. I now have the flexibility to transfer months between each daughter, my wife, and myself as we play the GI Bill shell game to best meet our needs. Do not wait until your dependent needs to use the benefits. Consider transferring now, even if you are not positive your dependent will use it, you can always pull it back until it is used.

In our fire safe at home, in the “personnel file” for each child I have a copy of the Defense Manpower Data Center letter verifying my approval for the transfer of benefits and obligation end along with my Certificate of Eligibility from the VA documenting my entitlement for 100% tier of CH 33 payments. These are filed right next to their birth certificates and 529 account information for safekeeping until they graduate high school. Again, putting on my ROM hat, don’t just say you’ve transferred your benefits to your dependents – be able to prove it!

What do I wish I could have done differently? Obviously, I look longingly at months of CH 1606 and CH 1607 I used on myself that would be much more valuable had I saved those for CH 33 and transferred them to my kids. Had I known then, I would have paid more out of pocket. As Brian P. O’Neill, CFP®, often says, “My crystal ball was cloudy” so I made the best decision I could, based on the information I had at the time.

What questions do you need to ask?

If you first enter the military as an enlisted member, CH 1606 is probably the first GI Bill you get familiar with. If you commission after paying for college under your own steam, you could still be eligible for this benefit with a six-year commitment but it might not be as heavily touted – so ask!

If you contemplate your career beyond the initial six, you should start to ponder:

Do I anticipate still needing this benefit to achieve my goals?
Will I be able to afford my education plan if I lose access to these benefits upon separation?
Do I anticipate accruing active duty periods that might make me eligible for increased benefits under other chapters?

Generally, you can use up to 12 months of this benefit without cutting into the months of entitlement of other programs in the future, so don’t leave money on the table unnecessarily.

If you have deployed or been hired as an AGR you may wonder:

Do I need to convert and begin using CH33 now or should I wait until I accrue more duty towards a higher tier?
What tuition assistance do I have access to now that will allow me to save up on my VA benefits?
Is it a smart play to use months of CH33 while I’m still on orders and receiving BAH?

If you establish eligibility for CH33 and have dependents:

How do I think these benefits will be used by my spouse and children?
Should I give at least one month of benefit to each dependent to make sure they will have access if our plans change?
Will I need to use these benefits for my own use to further my career?
Will an even better GI Bill be coming out in the future?

How Do I Explore The Right Strategy For Me?

As you can see, no two service members will have the same GI Bill scenario 100% of the time. There are a lot of variables that come into play based on the educational goals of you and your family, the benefits you have earned, outside resources, and other planning factors.

If you need more help understanding how your benefits incorporate into your financial picture and deciding which path is right for you reach out and connect with an advisor at the Military Financial Advisors Association!