Having easy finance expense categories can make it a LOT easier for you to stick with your personal budgeting commitment long-term. You know how it is when you try to put together a budgeting system, but you have 37 expense categories to look after. Who can live their life that way on a consistent basis without deviating from the system? It is almost impossible, and that is why the four bucket system keeps it simple when it comes to managing your expense categories.
Introducing the Four Bucket Personal Finance System
When you think about it, there are only a few major categories when it comes to budgeting: living expenses, investing, reserve spending and gift giving. Everything fits into one of these four categories or “buckets,” and so keeping these as your expense categories will make it much easier for you to stick with your commitment. How do you get started in using the four bucket personal finance system?
Start With Your Priorities
The first step to using the four bucket system is arranging the four categories according to your personal money management principles. For example, placing them in this order has proven to be very effective for people who want to build personal wealth:
1. “Pay Yourself First” (accumulating capital to create new wealth)
2. Living expenses
3. Contributions (includes charitable giving)
4. Reserve (building an emergency and special purchase fund)
This is backwards to the way that the majority of people manage their personal finance expense categories. Most people start out by paying their living expenses and investing what is left over…this is a surefire way to make sure that you never start investing.
There is an old saying that goes: “Poor people are poor because they spend their money and invest what’s left. Rich people are rich because they invest their money first and then spend what’s left.”
If you apply this principle in using the four bucket personal finance system, you will never miss the invested money. You will adapt to pay your living expenses without it, and this will put you on the road to building wealth and financial security.
So sit down with these four personal finance expense categories and apply the four bucket personal finance system to managing your income and outgo. For best results, put “Pay Yourself First” and start making your wealth building and financial security the number one priority.