In 2015, I told you that I wanted to make 2016 your best year ever. Now I’m determined to make it happen. Over the course of the next few weeks, I will be breaking down my money mapping system,
my Kashflow System, with graphics and exercises to help you nail this money thing once and for all.
If you’ve been tuning in for some time, you may have heard me mention my Kashflow System before. I swear by this system. It’s the system that I’ve used to tackle my debt, build my wealth, and fund my health. I believe in its success, because I’ve succeeded with it, and I want to share that success with you.
So if you’re ready to put an end to financial oblivion, I invite you to follow along as I lead you through my prosperous Kashflow System.
Here’s how the next four weeks are going to go, so mark your calendars and let’s get to it!
Week 1: Introduction: Flowchart, Buckets & Flow Formula
Week 2: Future Planning & Debt Payoff
Week 3: Inflow Amplification
Week 4: Navigation: 100 Year Plan
Introduction: Flowchart, Buckets & Flow Formula
First Thing’s First: The Kashflow Philosophy
Financial planning as we know it is a bust. It has a history of being stringent and that makes it hard for many people to get into. That’s because too many financial plans only account for the Future – i.e. the elusive Retirement – without factoring in the Present. (I stray from the word ‘budget’ for that very reason; it’s a vise to present happiness. The word ‘flow’ is much better – it’s ongoing and it’s flexible. Hence Kashflow.)
The Kashflow System is an answer to the constrictive budgeting plans of the past. It allows you to enjoy your Present while also building a promising Future. Because this much is true: how you live now affects how you will live in the future. If your life sucks now, and you’re not doing anything to change it, you’re due for a major existential crisis later.
So, before we get any further, write this down on a post-it note and stick it to your bathroom mirror:
Today I will enjoy my present so that I enjoy a fulfilling future.
Now that you’ve made that promise to yourself, take a look at the Kashflow Flowchart:
The three big buckets at the top represent your Inflow. These are your income streams. Your Inflow funnels into everything below – your Outflow. How you direct your Outflow affects how you live.
The buckets above the line – Taxes and Investments – support your Future Self and the buckets below the line – Living, Savings, and Debt Payoff – support your Current Self.
Above the Line: Future Self
The Future Self lies above the line because the money that goes here is reserved for your future benefit, so it’s essentially out of reach. When implementing the Kashflow System, the idea is always to funnel your Inflow into your Future Self immediately, and then leave it alone like it’s money you don’t have. This money is then unavailable to be spent.*
Taxes: The percentage that you put into your Taxes bucket will vary per state and income level. For many, taxes are conveniently deducted from your paychecks. But for others, you will need to manually transfer this money out of your account and into a tax account as soon as you receive your paycheck.
Investments: If it’s not self-evident, your body is your #1 asset. To support your family, your job, your dreams and the world around you, you need to have your health. That’s why I believe you should invest in your health as ardently as you invest in your wealth.
Unlike most models, my Kashflow System includes two investment buckets for your Future Self:
*Wellth: This covers all health care. I don’t mean covering the expense of going to the doctor because you have the flu – that’s sick care. True health care, or Self Care, is investing in your body as your most important asset. This means investing in the 6 areas of health, or my FEEELs System: Food, Exercise, Energy flow, Environment, Labs and Self care (I’ll elaborate on this system further in another series). The reason this bucket gets an asterisk next to it is because this is the only money going into your Future Self that you can actively spend now. Because by taking of your health now you’re preparing your body for an active future – beyond retirement. Suggested percentage: 5% of Inflow.
Wealth: These are your investments, or assets (in the traditional sense). This bucket includes your 401(k) or IRA accounts, investment properties (not your home), or other investment products – wherever you’re building assets to become income streams. Whereas you’ll pull money every year to invest in your body as an asset for your Future Self, the Wealth bucket will produce multiple Inflow streams to support your Future Self. Suggested percentage: 15% of Inflow.
Once you’ve taken care of your Future Self, the money that you have leftover is now your Spending Kash. Spending Kash isn’t money that you have to spend freely on Amazon; it’s the money that you have to spend on your Current Self.
The way to flow your money into your Current Self is is founded upon an 80/20 principle. 80% of your Spending Kash should go into your Living expenses, and 20% of your Spending Kash should go into Savings and Debt Payoff.
A cheeky way to remember this distribution is Spending Kash = LSD – Living, Savings, and Debt. ?
Living: This encompasses everything from your Living expenses to what I call Luxury expenses. Your Living expenses are your required expenses, the essentials you have to pay for to sustain your livelihood: insurance, mortgage, groceries, gas money, etc. Secondary to Living expenses are Luxury expenses. Luxury expenses are the things you pay for regularly that you don’t need, but contribute to your happiness. This includes expenses like restaurant meals and Netflix. Suggested percentage: 80% of Spending Kash.
Savings: Spending money is a lot more fun than saving it. So think of saving as spending! Savings are, after all, future expenses. The Savings bucket is broken down into three sub-buckets: Rainy Day, Education, and Dreams (RED for short).
Rainy Day: This is your reserve for Oh Shit! moments, like having to replace a flat tire, or having to have your washing machine repaired. Because it’s best to err on the side of caution, I recommend building up six months’ worth of Living expenses in your Rainy Day bucket. Suggested percentage: 5% of Spending Kash.
Education: If you weren’t able to afford my Wealth + Wellth Conference this first time around, here’s the key to making sure you don’t miss the next one in June! All of the money here goes to books, classes, conferences and workshops that serve to engage your skills – because you want to engage them, not because you have to! Your kids’ education money can go here, too. Suggested percentage: 5% of Spending Kash.
Dreams: This is the fun bucket, the bucket for your bucket list, your want to-dos. The money that you flow into this bucket goes to dream vacations, festivals, retreats, homes, cars, and other far off and far out expenses and experiences. Suggested percentage: 5% of Spending Kash.
Debt*: A lot of people believe that before they can start investing in themselves and saving, they need to have all of their debts paid off. This approach may work for some people, but I find it long and excruciating. As someone who has paid off hundreds of thousands in debt in my life, I believe you ought to pay off debt and build your wealth at the same time. Stick around for Week 3 when I present my system for eliminating debt. Suggested percentage: 5% of Spending Kash.
*If you don’t have debt, you can flow that extra 5% into your RED Savings buckets!
Activity #1: How do you measure up?
What You’ll Need:
- Expenses for this past month
- 1 Hour
- Write down, print out or load your personal expenses for the past month into a money managing app. This includes your bank account and credit card statements. (Note! This doesn’t include business expenses. Those are managed in a separate account and according to a different business accounting method.)
- Review each line. Label each expense according to the buckets: Taxes, Investments (Wealth & Wellth), Living, Savings (Rainy Day, Education, Dreams), and Debt.
- Add up what you spent in each category.
- Now, take a look at your Future Self. Use this to figure out your Total Spending Kash.
- Next, take a look at your Current Self.
- Finally: Assess! What conclusions can you draw about your money habits? Do your expenses align with the Kashflow Formula to any extent? Do you stay within the suggested Spending Kash allowance? Write down your observations.
Throughout the next week, keep note of your spending decisions. Write down any patterns you notice or any challenges you face. Then be on the lookout for next week’s blog post, where I will teach you how to adjust those spending levels to support your dream life.