Personal Cash Flow Management without Budgeting?

Michael, what does this mean?
You’re saying I can track my money without tracking every transaction?
Or having 10-20 categories/line items?

And I don’t have to live paycheck to paycheck?

Great Scott…Michael, you’re lying…

To which I respond…”no cap*”…

GASP! 😳

Michael, what would Dave Ramsey think?

Well…Dave Ramsey is wrong…
Tracking every transaction isn’t the best way…for everyone.

Big deal! What’s in it for me?!?

20-60-20.

Designed to bring simplicity and margin to your personal and business finances.

It removes mental load.
Which comes in pretty handy when wrangling toddlers and babies.
(If you’re into that sort of thing.)

It makes boundaries more concrete.

It helps keep those pesky categories in line that are always over budget.

It approaches your month-to-month from a wholistic perspective.

* “no cap” means I’m not lying in high schooler speak.
Thank you to the youth group kids for graciously teaching me new words.

20-60-20

The simple outline is this.

Your monthly income is split between these overhead categories.
Ideally, you can auto-allocate your paychecks to the respective bank accounts.

• 20% - Financial goals (giving and saving)

• 60% - Fixed cost (bills, utilities, subscriptions, loans…)

• 20% - Flexible Expenses (eating out, inconsistent needs for the house, anything that changes from month to month*)

Are these hard percentages? No.

This is a great place to start. But income and bills will make the percentages change.

Geeee. Thanks, Michael.
Another financial hack with no implementation… {eye roll} -_-

How do I do this?

Implementation

Michael, You said no budgeting…this kinda sounds like budgeting.

It is managing your money.

But… it’s not categorizing every transaction.
It’s not tracking ~15 categories each month.

Which is what Dave Ramsey says you need to do.

okay okay…so how do I implement this?

The Steps :

Step 1.

(This part is the closest thing to a traditional budget that you’ll need to do.)

Figure your monthly expenses. You need to know how much money is going out each month.

What expenses do you have on auto-pay or pay every month?
(or quarterly/yearly payments like insurance)
Think utilities, insurance, subscriptions, mortgage/rent…all the monthly bills.

Ideally, this will be around or under 60% of your monthly income.

Say its 50% of your income. Great!

Now you have 10% you can allocate to your flex spending or financial goals!

BUT WAIT!

I don’t “need” my youtube premium subscription…Do I still count it in this category? Yes. It’s a fixed cost.

IF your fixed costs are too high then you work to lower them.

Step 2.

Open a separate bank account at a different bank for flexible spending.

This is going to be inconvenient… and probably annoying…

The reason for it is…

When the money is in a different account at the same bank.

It makes it too easy to transfer money between accounts.

“Oh…I get paid in two days I’ll just borrow from myself and pay it back.”

When the money is in a separate bank account it makes a concrete boundary.

When this money is gone and you continue to spend it’s directly eating into your financial goals or the fixed cost that don’t change.

Both of those are “N.G. - Not Good”**

Step 3.

Allocate and spend out of each category respectively.

Bills and auto pay are out of the fixed account.

Eating out and getting new socks are out of the flex account.

Giving and saving for a downpayment is from the financial goals account.

Example

Let’s use a monthly income of $10,000 easy math!

When you get paid you allocate the dollars in the following way:

• 20% to your Financial Goal Account

• 60% to your Fixed Bank Account

• 20% to your Flex Account - At a different bank.

It’s not a perfect method. But it has been a game changer for us.

*Groceries can go either way. Some people can dial in their food budget others need the wiggle room from month to month.
We actually have a separate account just for groceries…which probably isn’t necessary for most people.

** Thanks for clarifying mom. <3

Mental Margin

Our journey with budgeting.

Tracking each transaction every month weighed us down.

It became like a large anvil covered in double-sided tape…that was duct taped to my foot.

I also had banana peels for shoes.
VERY inconvenient. Hard to walk N.G.

The 20-60-20 Method has brought margin and peace to our home.

And it brought clarity in times of financial drought #BeginnerEntrepreneur.

I hope this helps.

Please reach out with any questions you have!

Summary

Steps:

1. Calculate your monthly expenses. You must know what' going out and what’s fixed.

2. Open a bank account at a different bank. This will be for flexible spending. Depending on your fixed costs this should be around 20% of your monthly income.

3. Allocate 20-60-20 to each bank account.

   1. Spend respectively from each account as needed

   2. Instead of categorizing everything in a program after you spend…you purchase from each account on the front end.

Closing

I hope these words were challenging and encouraging.

I’m still dialing in the newsletter’s format.

So it will change and topics will vary.

Please respond to this email if you have any ideas or topics you want me to cover. Or if you have any follow-up questions about this issue!

Thanks!

Michael D. Kamm
The Reformed Entrepreneur

P.S.

The best budget is the one you use.

There is plenty of wiggle room with The Living Margin Method.

Dave Ramsey does have good things to say.

He’s a great foundation for finance.

But I wouldn’t trust everything he says.

And I definitely wouldn’t trust his theology. :)