How do you manage your money to accomplish your life goals? One of the most annoying things about managing money is doing all the work to create the budget, make the spending cuts, and have a plan for being in the black but still have nothing leftover at the end of the month. Sound familiar? It's totally defeating.
I wasted so much time over the years trying to cut expenses, only to have it make no difference because I could never quite figure out a sustainable efficient way to maximize my money so that I could actually measure what I had left to put toward my life goals at the end of the month.
Case in point, I just finished paying off my car lease so I had the first month of no car payment- yay! So I should have had a surplus this month for the amount of my car payment. Don't ask me why my checking account was not ahead... boo!
In getting a certified financial planner I finally learned how to manage my money more efficiently. It's called having a cash management system and this week I actually implemented it.
Manage Your Money With a Cash Management System 101
With a cash management system, you no longer have to wonder where your money went or if you stayed on budget or if you have enough in your account to cover your bills this month.
More importantly, you have the beauty of being able to see exactly how much money you have left to invest in your life goals at the end of every month.
A cash management system is simply a way to plan for how to use your money in the most efficient way to accomplish your life goals faster.
My cash management system includes five elements: a master checking account, lifestyle checking account, savings account (with sub accounts) brokerage account and a credit card with rewards. These five elements work together to keep me on track to funding my life goals.
How It Works
If you've never heard of a cash management system, here is how it works. All of your income gets deposited into the master checking account. This account is used to make any tithes and debt repayments (i.e. mortgage credit card debt or auto loans).
The credit card with rewards is used to pay as many fixed bills as will accept a credit card as possible. Things like your cell phone bill, cable bill, Netflix, auto insurance, home insurance, etc. It's ideal to have these charges all happen in the first week of the month so you can pay the card off in full by mid month. Use your master account to pay off the credit card.
The Lifestyle checking account is for all of your flexible spending budget items. Things like groceries, gas, water and power, entertainment, fitness membership, etc.
The savings account and sub accounts are used to save for irregular charges that you only have periodically. Things like Christmas, taxes and vacations.
The brokerage account is used invest any of the money you have left in your master account and your lifestyle account at the end of the month.
Let's look next at the 6 steps to implementing a cash management system to manage your money and accomplish your life goals.
"Money is only a tool. It will take you wherever you wish, but it will not replace you as the driver."Ayn Rand
Step 1: Set Your Life Goals
Ask yourself what it is you want to accomplish in your lifetime. Things you want to do, places you want to go, contributions you want to make, etc. Write down the goals.
Then ask yourself when you want to do them. What things do you want to do in the next year, five years, ten years and twenty years? Assign dates to all of the goals. Some of my goals included paying off my mortgage in the next five years, retiring in 10 years, visiting Europe with my family and sponsoring 10 children around the world.
Next, quantify your goals so you know what you're aiming for. Approximate how much that trip to Europe will cost. Then divide the cost by the amount of months between now and the deadline you set for it. That number is the amount of money you need to save or invest each month to reach your goal on time.
These goals you write down will be the reason you sacrifice now for reward later. If you don't have goals, you will likely not manage your money as well as if you had a reason driving you.
Step 2: Automate Debt Repayments From Your Master Account
The master checking account will take in all of your income and be the first place to pay the most important bills like your rent or mortgage, debt repayments and your tithe. If you're unfamiliar with tithing, it is an ancient Biblical principle that means giving 10% back to God as an expression of worship and trust in Him to provide your needs. I have practiced this discipline since the age of 12 and highly recommend it if you want to avoid money being your master.
I would like to point out that if you have credit card debt or a car payment, retiring those debts should be at the top of your list of life goals. As you knock them out one at a time, you can snowball those payments into the next debt and be financially free before you know it.
Schedule these basic debt bills as auto recurring payments so you can set it and forget it. In doing this you will never be late on a payment and will simultaneously be building great credit, so if that's one of your life goals, you'll be well on your way.
Step 3: Save For Irregular Expenses
How much did you spend on Christmas last year? Divide that number by 12 and start transferring that monthly amount to a savings sub account for "christmas" each month. Do the same for vacations, taxes, weddings, etc. Any short term irregular thing you need to set aside money for so that you have it when it comes time to execute.
You can use your same bank for the savings account if you want to. I use CapitalOne360.com because it's easy and I can setup multiple sub savings accounts for each irregular bill. It takes 3 business days to access the funds, whereas your bank savings account transfers are immediate.
Step 4: Use Your Bills to Help You Accomplish Your Goals
Choose a credit card with rewards that most aligns with your life goals. If you have lots of exotic travel spots on your life goals list, you may want to choose an airline or hotel rewards card. Amex Starwood Preferred is the best one for that. I prefer to keep my options open so I go with a standard Amex points card but am looking to shift to a Fidelity Visa that offers 2% cash back instead.
Once you've chosen the best card for you, call your bill companies and ask them to change the due dates to the first week of the month and schedule all the payments to be direct debited with your chosen credit card.
Add up the total amount of the fixed expenses to be charged and pay that amount off in full by the 15th of the month or before the due date. This only works if you are strategic about using the credit card and pay it off religiously before the payment is due.
I have used this strategy for over 15 years and have been able to use the points I earned from my everyday spending to pay for airfares, hotels, restaurants and entertainment that were connected to my life goals like taking my family to Hawaii or flying family and friends out to visit me.
I like to look at this as getting rewarded for paying my bills on time. It is a smart way to use credit to your advantage because you are using fixed expenses you were going to pay out of your regular checking account anyway but by using a rewards card, you make valuable strides toward your life goals.
Step 5: Pay For Your Lifestyle With Cash
Determine the amount of money you will spend for the month on flexible expenses like groceries, gas, clothing, entertainment, haircuts, restaurants, spending money, etc. Then divide that amount by 4.3 to get a weekly allotment. Transfer this amount from your master account to your Lifestyle Account weekly.
This is the amount you have to spend. Pulling it out in cash is a highly recommended way to save even more. Statistically, you will spend at least 30% less if you pay for things in cash.
I experienced this first hand when I shopped for groceries with cash this week. First of all, it is a super scary experience to shop for groceries with cash because it means you can only put things in your cart that you have the money to pay for.
It's so much easier to stay on budget when you don't use an ATM card to pay for groceries. I ended up spending $50 less for groceries than I normally do just because I knew I was going to have to pay with cash.
It is super simple to set up an additional checking account with your bank, it took me all of 5 minutes to open another account at my credit union and it was free. I nicknamed it "Lifestyle Account" but you can call yours whatever you want.
Step 6: Invest For Your Goals
The beauty of a cash management system is that at the end of the month, whatever is left in your Master account is what you have saved that month to invest for your goals.
If you have done a particularly good job with your lifestyle spending, you may even have some excess here at the end of the month.
Transfer these amounts into your brokerage account where they can be invested and let that money begin to grow so that you can accomplish your life goals even faster.
If you don't have a brokerage account, you can simply go online to Fidelity or Charles Schwab and set one up.
I wish I had started a cash management system a long time ago. I cringe to think of all the money that I wasted by not having a focused plan. But the good thing about money is that you can always make more of it. So I am starting now and implementing a plan that will actually allow me to see how much I've saved each month, before it gets gobbled up by lifestyle expenses. Here's how you can too:
- Set your life goals
- Automate Debt Repayments from your master checking account
- Save for irregular expenses
- Use your bills to your advantage
- Pay for your lifestyle with cash
- Invest for your goals
Happy Money Managing!
READ NEXT: HOW I ORGANIZE MY MONEY TO CREATE A MEANINGFUL LIFE
Welcome to Honey & Figs! I'm Lisa. I love helping people with practical ways to live more abundant lives based on my own experience. You can click here to find out more about me.
I’ve been working on money management. I like what you are saying here about dividing out Christmas money and vacation money. I’ll be doing that for my next pay cycle. Thanks for these tips!
So happy it helped you. Yes, it’s amazing how quickly those monthly set-asides add up for when we need them later in the year. Thanks for sharing Brittany!