It's important to have a system. I don't personally like money stuffing, though.
Here's a TL;DR of my system. It got me from broke to not broke.
Money goes into my business account
Once a week, I transfer money from my business account to my personal account
I always keep a certain amount in my business account (which I call a "float") so that bills etc. can get paid. So the float gets filled up first, and the amount I transfer is the income minus the float.
Since I have an LLC, 30% of the transferred money goes immediately into a savings account that I dedicate to taxes
My personal checking has a float too, so I fill that up next.
And whatever is left over gets dispersed into funds for specific expenses/products/experiences/etc. I do not allow myself to access these funds, except for the intended purpose — if money goes into the fund, it is no longer available. I have my funds listed in order of priority, and I move money to those funds accordingly. All of this money is in another savings account, and I track how much is in each fund with a spreadsheet.
My taxes are always paid first, as are my bills since those come out of my floats. Any "excess" money gets invested into things that are important to me instead of just floating around until they get spent somewhere randomly. I don't personally "budget"
This is almost exactly how I ran my own finances when I was self employed and running all my income through my LLC as well.
30% straight off the top to savings for taxes
Paid myself $4000/month in $2k "paychecks" 2x/month for personal stuff + living expenses
Let the rest of the money pile up in my LLC checking account until the end of the year, and then took a healthy distribution while still leaving a good amount in the account for padding.
We ensured all our personal spending was within that $4k (raised it to $4,500 and then $5,000 later in the year after doing very well), and we did very well under that system. It was probably our family's single best year for budgeting ever.
like @Primer said, this is a super old technique. And as for the actual stuffing of cash into an envelope, that's a little crazy considering many places (like restaurants) are less and less likely to accept cash at all. Which brings me to what I really want to know. Does anyone here use a great budgeting app that would allow to mimic this system? 🤔🤑
We bank at a Dutch bank that provides you with 25 accounts and three cards as a default. You can then use the app to link your cards to specific accounts and change them as need be.
This allows you to buy groceries from your Grocery account and then change the linked account to "Eating out" before stopping somewhere and having lunch. It makes saving and keeping track of our spending a lot easier.
I can't imagine doing this with actual physical cash. But I definitely like the psychology of compartmentalizing the idea that "funds ABC are reserved for one purpose while funds XYZ are reserved for a second purpose."
I compartmentalized my consulting income this way back when I did contract development work. I created a separate bank account for taxable income and made sure to put the correct percentage of my paycheck into it. And this was of course a hardwon lesson from the previous years of contract work where I didn't have a system like this.
"The idea is simple: You take your paycheck in cash and divide it into envelopes based on your budget for different needs, including both spending and saving.
Say you have $200 budgeted for groceries this week. You'll take that cash out of your "groceries" envelope and bring it with you to the store. If your bill ends up above $200, you will be forced to put some items back."
It's important to have a system. I don't personally like money stuffing, though.
Here's a TL;DR of my system. It got me from broke to not broke.
My taxes are always paid first, as are my bills since those come out of my floats. Any "excess" money gets invested into things that are important to me instead of just floating around until they get spent somewhere randomly. I don't personally "budget"
This is almost exactly how I ran my own finances when I was self employed and running all my income through my LLC as well.
We ensured all our personal spending was within that $4k (raised it to $4,500 and then $5,000 later in the year after doing very well), and we did very well under that system. It was probably our family's single best year for budgeting ever.
like @Primer said, this is a super old technique. And as for the actual stuffing of cash into an envelope, that's a little crazy considering many places (like restaurants) are less and less likely to accept cash at all. Which brings me to what I really want to know. Does anyone here use a great budgeting app that would allow to mimic this system? 🤔🤑
This article helped me a lot! Thanks!
Well, it's budgeting.
we should do the same with time, that IMHO is the most valuable resource :D
I would not even consider this a hack, unfortunately... An yet still I have so much debt
Anyone on IH doing this?
We bank at a Dutch bank that provides you with 25 accounts and three cards as a default. You can then use the app to link your cards to specific accounts and change them as need be.
This allows you to buy groceries from your Grocery account and then change the linked account to "Eating out" before stopping somewhere and having lunch. It makes saving and keeping track of our spending a lot easier.
I can't imagine doing this with actual physical cash. But I definitely like the psychology of compartmentalizing the idea that "funds ABC are reserved for one purpose while funds XYZ are reserved for a second purpose."
I compartmentalized my consulting income this way back when I did contract development work. I created a separate bank account for taxable income and made sure to put the correct percentage of my paycheck into it. And this was of course a hardwon lesson from the previous years of contract work where I didn't have a system like this.
Haven't tired it, but it's an interesting idea...
This comment was deleted a year ago.