The last seven years have seen record levels of bankruptcy, from global corporations through to banks, smaller businesses and individuals. There are many causes, reasons and excuses but they nearly all stem from the simple error of spending more than income.

Until the 1950’s, very few ‘working people’ had a bank account and, of course, credit cards hadn’t been invented. Families managed their finances by using a crude system of envelope economics. This required that the content of each wage packet was allocated to its designated purpose before a single penny was spent.

The man of the house would come home on pay day (usually Friday) and pass a small brown envelope containing his wages to his wife. Before 1950 this might be just £5 a week. There would be five other used envelopes on the kitchen table. The first £1 would go into the envelope marked ‘insurance and rent’, the next £1 was for food, another £1 was set aside for rainy day savings and only the last £2 could be spent.

When you start a business or independent practice you could think of this discipline as 20% of income to a deposit bearing account for tax and insurance liabilities, 20% for running costs and consumables, 20% for contingencies and emergencies, 20% for developing your enterprise and finally, the 20% net profit that is your fun money.

If this is too simple to get your mind around, just compare the cost of recycled envelope economics with the fees that an accountant will charge you. Yes, you will need professional accounting input and financial records before tax day. Just be sure that you have the fees ready in advance.

Extract taken from Special Achievement Newsletter www.achievementspecialists.co.uk/freebie/newsletter