Today I want to talk about a couple other various money management techniques or tactics.
Really want to talk about two different things. First, the non-budgeting budget system. which I’ve used in the past and I have had other clients have used it and it’s really helped some of them. Additionally, I want to talk about technology and how that can aid you in your money management system, in your budgeting, in your cashflow planning.
The Non-Budgeting Budgeting System
But first the non-budgeting budgeting system. I first heard about this from a gentleman named Roger Whitney. He’s a certified financial planner and has some good stuff out there in the retirement space. And Erica and I did this for a couple of years. It’s a really, really good way for business owners and retirees to utilize it. But anyone can if they want to.
Here’s how most people operate when it comes to budgeting or… Money management, they get their paychecks or their pensions or their income or their business distributions and they basically place in their checking account and then they go spend it. And so, they must be continually thinking about the timing of the money coming in and the money going out, the cash flows in and the cash flows out.
And this can be addressed through distributed budgeting, but also using this non budgeting budgeting system. The way it works is instead of the money coming into your checking account, you change that where all your direct deposits go to your savings account. The various times throughout the month where you get paid, instead of coming to your checking, it goes to your savings.
And then on the first of the month, you transfer from savings to checking the amount, the flat amount. That you want to spend in that entire month, but it’s a number that’s less than your total income that came into your savings account. For example, if you have $6,500 throughout various paychecks coming in and your savings account, you might only transfer $6,000.
And then what you have is all your income on the first of the month, which makes it easy to budget because when the money’s coming and then you can set up all your various bills to go out in the beginning of the month knowing they got paid. And your primary goal is to make the money last in your checking account.
Until the end of the month and the idea is meanwhile the income from that month is going into your savings account Again piling up for the next month And then you transfer the first of the month a portion that you’re going to actually spend off Now the obvious key is that you have to get ahead on this you have to prime the pump You have to have the money in savings For the first time.
The Benefits
What are the benefits of using this system? Well, there’s a couple.
The first benefit is you have all your money to pay your bills or your expenses right after the first for the personal clients that I’ve had utilize this. I try to get them to set up their payments using either bill pay or paying amount or auto drafts or whatever it might be between the fifth and the 10th.
And that way they know. That their bills are getting paid because by the 10th of the month, all the bills basically have been paid. And now they know they have from the 10th of the month to the end of the month, generally 30 days to live off the rest for gas, grocery spending, that type of stuff.
The second benefit is that it eliminates the timing element of your paychecks.
A couple months ago, I had some coaching clients that have transitioned to this, and she told me one time that she got paid and they didn’t even realize they got paid previously. They were always looking to how many days till payday, five days till payday, three days till payday, two days till payday. Hey, we got paid today.
But now they got paid and they didn’t realize it because their paychecks are going into their savings account and they’re only focusing on their checking account And so it really took the pressure and the need to be concerned about when paychecks are coming in the third benefit to this is that it makes budgeting more consistent and standardized but never cookie cutter, right?
There’s never a cookie cutter every month is going to be a little bit different but It makes it simpler and consistent in that the amount of income you’re going to get and when it’s going to come in because you’re going to transfer it on the first and so it makes it easier to actually plan and know when money’s coming in and you can be proactive in setting up the money going out.
The fourth benefit to this is if you set it up right, you’re inherently living on less than you make. Because your paychecks are going to your savings account, but you’re living off the money you moved to your checking account, which is less than the total income that came into your savings account, you essentially are building up this excess money in savings for extra things, such as savings goals, intentional savings, investing, whatever it might be.
But you’re inherently… Building that muscle of living on less than you make.
If you remember back in our retirement framework, one of the steps was we talked about the idea of practicing retirement. When most people retire, their income goes down, not all, but most. And so, you can practice or simulate living on that reduced income while you’re still working because your income is going into your savings account, thus proving to yourself that you really can live off that money.
In that checking account each month and it’ll give you the confidence to step into retirement and be able to pull that retirement Lever, so this is a really good way to help simulate retirement. You can also use this to simulate job changes. If you’re thinking about changing jobs or a lot of times where one spouse wants to come home, maybe a mom wants to come home to be a stay-at-home mom.
If you do this, you can simulate and practice what that’s going to look like financially before you just up and make the decision. And it gives you confidence to step into that decision. with clarity and intentionality and focus.
The Drawbacks
Now there’s a couple of downsides to this too that I want to make you aware of. First is it can potentially create this feast or famine approach. And so, you really need to watch the emotional elements of that. What I mean is, if you transfer all the money of the first, you’re like, Ooh, I got all this money.
It’s feast time. It’s party time. Let’s go spend some money. And then towards the end of the month, you’re like, man, we don’t get no money. We ain’t got no food. I hope there’s something in the pantry, otherwise we’re fasting for the next three days, and it creates this famine approach., you can get in these cyclical emotional aspects of that, of, oh, there’s money and let’s go free for all spending.
And so, your kind of really need to watch that aspect of it.
Secondly, is it takes a while to get going. If you’re operating in a constrained cashflow position to begin with, it’s going to take you a while to build up those savings aspects. Cause remember you have to kind of prime the pump first. You must have the money the first month to start it.
If you have an emergency fund or have extra savings, it’d be very easily to utilize this. But if you’re in a constrained cashflow environment where you’re just trying to get going month to month, this is kind of a more advanced step that you might want to wait for a while. And just focus on the budgeting and distributing the timing aspects that we talked about previously.
Budeting Apps
The other thing I want to address in this episode is that of the use of technology, software, or apps to help aid you in your financial. money management aspects. The FinTech world has grown up a lot in the last 10 years and there’s a lot of good apps out there. Things like YNAB and Wally and mint and every dollar a quick and has some products through into it.
A pocket guards. There are all kinds of various popular applications out there, not to mention Excel, Google sheets, things like that.
Nerd wallet recently wrote an article about the best Apps for budgeting in 2024 and I’m going to link it in the show notes below and might give you a couple of ideas of some apps that are out there, but what I really want to draw your attention to is the use of the methodology that they used.
https://www.nerdwallet.com/article/finance/best-budget-apps
They basically made a methodology or criterion on how to formulate scores as to determine what is the best application out there.
And here was some of their criteria. First, it had to sync to financial accounts. That’s the aspect of linking your bank accounts to that apps where the transactions are pulled in automatically, which helps with the tracking elements of it.
The second thing was that it helped you plan for financial decisions, vice tracking.
Past transactions. The idea of budgeting is forecasting, looking out the, the windshield, not the rear-view mirror, a lot of old or initial applications or apps only really track the past, which they give you some awareness, but it didn’t really help you plan. On your decisions going forward.
The third criteria that they had was it helped you expense categories and create custom expense categories, which is good because if you got something that was just inherent and you had to use their categories, it might not made sense.
You might have things that are not in the list. The ability to create custom categories is good.
The fourth criterion that they use is it helped you track bills and get alerts for upcoming due dates, which is good. That again helps you deal with the timing aspect of it.
A fifth criterion was that it shared information amongst partners. Husband and wives were able to utilize. It wasn’t just one user, you could have at least two different users utilizing the same thing, which is great for communication in a marriage.
Another criterion that they use is they had to have access to both desktop and web-based applications through browsers.
As well as mobile apps. You could look at the same information on your app as well as logging into the computer and viewing it there. They didn’t make this a criterion, but they did give other bonus points for features such as credit scores, net worth, investment tracking, things like that. Honestly, I don’t like that personally because I want to keep my budgeting tool, my budgeting tool.
I have financial planning software for those types of things. Adding too much more information in there. And my mind just distracts me from what I’m trying to utilize this. app for which is budgeting or cashflow management or money management in general. Lastly, they did rate it based upon user ratings and reviews in the apple store and the google play store.
And so, they had some things there as well. Their rating again, the link to this would be down below is. YNAB was number one, Good Budget was number two, empower was number three, Pocket Guard was number four, Honeydew was number five. Those were basically the first five applications that they recommend based upon their criteria.
Personal Experiences
Lastly here, as we wrap up this episode, I want to talk about the two applications that I used the most over the last four or five years. When I first came out and I started using mint and money for windows and things like that, but again, those are very much tracking or, or recording or accounting applications.
They didn’t add the planning aspect of it. The first one I used to be. Every dollar by Ramsey solutions. And so obviously I was a big day and still I’m a big Dave Ramsey guy. And so, when they first released the app in 2015, I was super excited about it. In fact, I remember specifically as on vacation we were at Mount Rushmore when the app was released, I downloaded it within the first, day or so, and I was super excited about it because up till that point, we were, we’re using distributed budgeting forms, which was great, but I thought this would really help.
But the sad reality is that it never really to this day, almost eight years later, it never baked the distributed aspect or the timing into the app. And so that was one of the things that I took away from Ramsey Solutions and the coaching aspects I went to there was the timing aspect of it, not just the basic budget, but distributing the timing element of cash flow management is so critical.
And so, they never really baked that element in. Which is why, a couple years later, I went to the non-budgeting budding system, and then Every Dollar really helped me utilize those two things together, because I would just transfer the money to the first, and then use Every Dollar to track it throughout the first.
And so that served us for, really, well for many, many years.
Recently I started using YNAB. Now, honestly, I tried it a couple of years ago, but it was pretty, it’s a pretty heavy lift, even for someone who’s really kind of into this stuff. And at the time I just didn’t want to invest the mental and time into learning YNAB.
But I’ve had a couple of clients that have used it. And they’ve really sworn by it and really are committed to it. I tried it again and I have found it very helpful.
It is zero based, which is really, good. It has the timing aspect in it, but it also serves as electronic envelopes if you will.
A lot of people use a whole bunch of different accounts to account for different flavors of money, but this bakes it in into one thing. It also helps you with saving and tracking to goals, which most don’t. And so, you can add a goal in there of how much you’re saving up towards.
It’ll break it down for you, show you the progress towards it. Additionally, you can have multiple budgets in there. I have one for our personal stuff as well as one for my business. And I think I can add more even beyond that. It’s a powerful tool. But I can tell you it’s not very simple.
They kind of have their own lingo and their own methodology and their own usage around it. If you want to utilize it, I’d recommend you go to their YouTube page, the YNAB channel, and there’s a watch to get started playlist. I watched that and that was really, helpful. Again, it’ll take you a couple months to really get it down.
I’m still kind of learning a couple months in. But I found it to be very, very powerful.
Micro Action
Your micro action for the week, consider the idea of using a budgeting app, if you think it’ll help you. Again, the NerdWallet article is attached below. You can read that. It might give a couple ideas of things to at least look at and explore if it will help you.
I hope this has helped you a little bit on your financial journey in specific relations to money management.
Next week, we’ll talk about money management for self-employed business owners of how to have a framework to ensure that things get, taking care of in your business as well as personal side and paying those quarterly taxes, which is always fun.
If you have any questions or comments, you can leave them down below or send an email to Mike at true wealth dot show Mike at true wealth dot show.
And until next time, hope you have a great day.
