Money — a piece of paper with no real value making the world work day and night to achieve it. Making people hope that one fine day they will have enough paper in their bank to never worry about it again, only to eventually realise that it is never enough.
I always wondered how the whole world is still functioning by trusting a piece of paper that is backed by nothing. But then I realised that it is not that paper the people trust, it is one another. I trust that my employer will value my work and accordingly pay me the pieces of paper which I trust the cafe barista will accept a few and in return give me a cappuccino. The barista will then collect many pieces of paper and trust their supplier to provide them with coffee beans, milk, sugar and other commodities in exchange.
Of course, most of the world is replacing these pieces of paper with simple numbers; numbers on some highly secured bank servers. I know all of this is over-simplified but the concept of money remains fascinating.
Money is crucial to survival. The money in bank accounts and wallets empowers people. It gives dreams, aspirations and freedom to live life. It gives a sense of security in darker times and sweet happiness on sunny days. Managing personal finance becomes consequential to enjoying this luxury. Yes, in the world we live in today, I would call this a luxury.
The more complicated one’s personal finance system is, the more difficult it is to get a clear picture of how well they are doing in terms of money.
Neither am I a millionaire nor am I a financial adviser. I will just be covering how I manage my money and hope it helps you in managing yours.
I follow a very simple and logical system I call the Buckets System.
The system is built with 6 buckets of money. Each bucket of money represents a bank account. I live in Australia and here every bank allows an account holder to open multiple Savings Accounts linked to 1 transaction account. I believe it is the same in most other countries as well.
The focus of this system is simplicity and flexibility. Each bucket has a purpose and is logically set up. You get a clear picture of where your money is and its purpose. All money is accounted for. The buckets are spread out categorically which you are in complete control of. Hence, you can add or remove buckets. At any given point in time, you know much money has been spent and how much is remaining.
This system is divided into two parts — buckets and flows.
Let’s start filling the buckets and understand their purpose.
Bucket 1: Hub in Bank 1
This is the bucket that is exposed to the world to deal with you. This is a transaction account with incomes from salaries and side gigs coming here. It is the account number you give your friends to transfer you the money they owe you. You will have a linked debit card to make payments.
Bucket 2: Fixed in Bank 1
This is a savings account holding all your fixed monthly expenses. This is your utility bills, phone bills, monthly insurance premiums, phone bills and apps and software subscriptions. Any expenses that you are sure of.