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It’s the easiest number to rapidly cut down and the easiest one to blow out of the water. The total sum for this bucket equates to your monthly spending cap when you set up a burn rate budget, a key number because it is the one number that connects your big-picture financial well being to your day to day life choices.
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Everything from gas to groceries, lattes to lipstick, all the daily choices you make trading money for something else. So this bucket can be very rapidly reduced, and just as rapidly blown up! It encompasses all your day to day, week to week spending on all your wants and needs. Unlike your recurring monthly bills, the spending bucket includes things that can be changed in every moment that you decide to spend, not spend, spend more, or spend less. The spending bucket is also outgoing money, but for things that are in your day to day control. It also includes monthly debt payments, like installment loan payments (mortgage, car loan, student loans) as well as credit card minimum payments for any cards carrying a balance past the grace period – something you’ll avoid ever happening again once you have your total money strategy down! ? #2 Spending So, this bucket generally contains utility bills, monthly insurance premiums, rent, cell phone, childcare, etc. It’s your fixed expenses, but focused exclusively on those that recur monthly or more often. The key characteristics of items in the monthly bills bucket are 1) outgoing money, and 2) recurring on a monthly or more frequent basis. Let’s talk about each bucket to help clarify how they each work to conceptualize and optimize the flow of how your monthly income is used: #1 Monthly Bills
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Investing, on the other hand, goes in the savings bucket because it is a type of “wealth building” rather than outgoing money. Sporadic donations fit into the spending bucket because that outgoing money isn’t recurring on a monthly or more frequent basis. So automated monthly giving, as outgoing money, fits into the monthly bills bucket. The buckets are much more about how that money is managed in your cashflow, not about what the money is used for. Seems logical, right? But it’s important these are folded into just these four buckets. For instance, you may be tempted to have a separate bucket for giving or investing. The point here is to keep things dead simple. Could you create more categories? Of course. Meet my four monthly cashflow buckets: 1) monthly bills, 2) debt attack, 3) savings, and 4) spending. Just strategic allocation of income across four simple and continually adjustable areas. Once you define these four buckets, you can optimize and tweak your financial picture one strategy at a time, without getting overwhelmed or lost in the minutia. More specifically, I like to organize monthly cashflow into four simple buckets. Everything else you do with your money will stem from first nailing down this monthly cashflow. I recommend organizing personal finances by month in this way because 90%+ of bills are paid on a monthly basis. The foundation for a simpler money management plan starts with the issue most relevant to your day to day money management: your monthly cashflow. What about irregular income and expenses?.Ideas for maintaining a smaller spending bucket:.Ideas for shrinking the monthly bills bucket:.Optimizing: shifting money across buckets.Setting the first targets: start-up numbers.