Strangely the last thing I ever thought I’d be doing is offering financial advice. Being one of the poorest managers of money on the planet sure doesn’t qualify me to advise anyone else.
Hear me out here.
I’ve always been one to use pockets-bank. My thinking was that by having my money in my pocket I would always be aware of how much I had to spend, and conversely how much I needed to save for my next bill. That is; I would have spending money in one pocket, and saved/bill money in another.
Simple and not particularly smart, however it served me okay for most of my life.
Recently I was attracted to a headline about a money bucket system by a guy who goes by the name of the Barefoot Investor. I’ll be clear that I have no affiliation with him at all. It was only a short article, a note written on the back of a serviette if I remember rightly.
And it went something like this, or this is my version of it anyway…
First set up a bank account with three (3) sub-accounts.
Name them as follows:
- Income
- Bills & emergency
- Living
- Savings
Firstly – the Income account (1). Make sure your income, or incomes, all go directly into this account. This allows you to monitor your income/s, and your outgoing automated transfers.
Second – Calculate the sum of all your regular bills, registration, etc. per annum, and figure out how much per week you need to cover that. Then once you have that weekly figure, make another regular automated payment of that amount to account 2 “Bills & Emergency”.
Third – The Barefoot Investor says you should live off 60% of your regular income, therefore set up a regular automated payment/transfer of approximately 60% of your income/s to Account 3, “Living”.
And finally, make an automated regular transfer of most of what remains into account 4, “Savings”.
At first you may have to tweak the amounts a bit to make it work, but once you have it sorted you can sit back and watch it work for you. It goes without saying that you shouldn’t rob the other accounts for living expenses. You may have to occasionally, but if you make a habit of it this is not going to work for you.
I can’t believe how well it works. I no longer have the feeling that the little money I do have is utterly out of control. It’s a really good feeling.
I don’t know that it would work for everyone, but because I have reduced my bills so much it works very well for me.
