Simple 4 Step System of Money Management Will Leave You Feeling Relaxed and in Control

Waterfall

Proper money management will make or break your financial success. Most people have no idea where their money is going and could probably be saving at least 30% without giving up any benefit of the dollars they are making.

I was shocked a few years ago when I gave a talk on the Essentials of Becoming Rich and in the feedback forms the most commonly appreciated area was on money management.

Apparently most people realize they could be doing a lot better in this area but it’s cumbersome to keep track of and optimize and gets pushed to the back burner.

We’re going to walk through the Richucation system of money management to show you how to make this really easy.

It addresses the most common problems and fits within a larger structure of getting amazing deals.

We call this Waterfall Money Management because you can think of it like water flowing down a waterfall. This speaks to THE SEQUENCE, which we notice continually is the gap people have.

Don’t worry it’s super easy and you’ll end up way ahead by following these 4 simple steps in order.


Background – This Will Magnify All the Rest

You could in theory simply start following the 4 steps of money management and adjust as you go but if you want to get the best results there’s a foundation you’ll want to do.

The foundation of all money management is measurement.

Quite simply you’re going to measure everything that goes out and everything that comes in.

This is quite simple the key is being thorough.

When we talk with most people and look at their estimates they almost inevitably miss expenses, which is a HUGE problem in small business, can prevent you from getting loans and hurts you in making the most of your money.

Two things tend to get into people’s way:

  1. They tend to under estimate how much they are spending – for example when it comes to food people routinely tell me $450/mo. is high but this is only $5/meal 3 meals per day 30 days per month and if you eat out at all you know $5/meal isn’t much at all. The solution is to measure rather than guess.
  2. They tend not to account for non-recurring expenses – for example the repairs to you car, the purchase of a new computer or furniture, emergency medical care, etc.

The way to do this most easily is make a list of everything you use in your life or business from clothing to food to furniture to electronics to vacations to gifts and everything in between. If you’ve got pets or kids make sure you account for them, etc.

Now figure out how often you pay for this and how much.

Finally, break this down into an annual and monthly figure.

For example, if I need to buy a new bed every 10 years and it costs me $2400 then this is $240/yr or $20/mo.

If I’m spending $300/mo. on groceries this is $3600/yr.

The goal here is to end up with a monthly amount you’re spending for everything in your life.

Note, this isn’t a budget, this is simply a measure of what you’re spending on average per month in total.

Of course you’re not spending this amount every month but some months you’ll spend more so we want to be aware of the average.

When in doubt estimate high or round up. Better to have too much than too little.

Revisit this list periodically to make sure it’s still accurate and adjust accordingly after all our lives change.

From here we can continue to the management of the money as it comes in.


Step 1 – Profit First

The first biggest change you can make in your financial management is to spend what remains after saving instead of saving what remains after spending.

This is super simple and super powerful psychologically. I cannot describe how much different this has made in the lives of people all over the world with just this tiny change.

It’s very straight forward.

Pick a percentage, any percentage is fine I recommend at least 10% and to target 30% anymore usually is excessive and take it right off the top of whatever you earn.

You earn $5000 this month? Take that percentage out and put it in a separate account or someplace you can’t touch it.

This becomes your investment fund. We discuss what to do with this depending on what stage you’re at in the Wealth Scales Map.

The reason this works so well is because just as work expands to fill the time spending expands to take up money.

There’s some strange psychological magic where if we have a constrained money supply we spend less. If we give ourselves more we spend more.

By taking a fixed percentage out for our profit fund right off the top we automatically get ahead every month.

To recap every dollar you bring in from any source take a fixed percentage set by you in advance (ideally start with a minimum 10% and as you get your income up and expenses down aim for 30%) out and put it in a profit fund which you’ll use for investing (growing your income) and nothing else.

You never touch this money it is for growing your wealth and your dreams long term. It’s what makes sure you’ve got an amazing life for the rest of your life.

Think of this as money accumulating in a beautiful lake at the top of the waterfall.


Step 2 – What No One Talks About & Where Everyone Goes Wrong

You’ve now got the majority of your money and it’s time to spend right?

No, not quite yet.

Here is where most people go wrong.

Most people spend on their short term needs without budgeting for their long term expenses so this is what we’ll do next.

Remember how you identified all your non-recurring expenses previously and broke it down into a monthly amount?

Take that amount of your total after removing the profit.

For example, let’s say you’re bringing in $5000/mo. and have a profit fund of 10% or $500/mo. This means you’ve got $4500/mo left.

Say all your long-term expenses like:

  • Car purchase
  • Non-monthly maintenance
  • Vacations
  • Gifts
  • Annual memberships
  • Possibly taxes
  • Etc.

Add up to $1000/mo.

Take out $1000/mo and put it in your long-term spending account.

This is an account you only touch for those long term non-recurring expenses you budgeted for.

Again, it’s very simple.

People go over their budget, get into debt, etc. because they haven’t planned for these non-recurring expenses. So long as you’ve accurately calculated them (if you haven’t then you can adjust as you go along revisiting that original list) with this system you’ll always be good.

You’ve now got two accounts your profit account used only for investing (your priority because this is essentially investing in you, your future, your dreams, etc.) and your long term spending account used only for those non-recurring expenses you previously measured.

To recap you do this every month withdrawing the money right off the top after withdrawing the amount for your profit fund and before you pay for anything else.


Step 3 – Take Care of Your Needs

You’ve now removed everything you need both to your profit fund and to your long term spending fund.

What’s left?

Pay for your necessities.

Note, there’s nothing specific that’s a necessity vs not it’s all based on what’s important to you.

Maybe this includes interests, hobbies, dining, rent, etc.

The important point is you’re free to spend on these things because you know you’re getting ahead each month and you know you’ve already taken care of your long term spending.

You do want to ensure you pay for the things you need to vs simple pleasures or well of course you won’t have money for those simple pleasures, which is why we specifically mention your needs here.

This being said this section is easy if you’ve nailed the first three.


Finally – Have Fun!

Whatever is left after paying for your needs form your slush fund.

You can do whatever you want with this money.

Ideally, everything from the start till this point is built around serving your values vs being compelled into serving the values of someone else.

This system is as natural as water flowing down a cliff, hence calling it Waterfall Money Management.

If you think about it this is exactly what you do but organized into an organic sequence to make sure you’re taking care of yourself.

Measure what is coming in and going out. Break it down into monthly and yearly costs (this is important as you expand into reducing those costs, which we find most people can reduce their costs by 30% without suffering any in terms of their quality of life – you can explore how in Get Deals training).

Set aside your profit fund, the beautiful lake forming at the top of the mountain feeding your future.

What’s left starts flowing down in spending but you make sure to take out your long term spending first so it’s covered and you never end up short.

Then you spend what’s remaining on your needs.

If you’ve got anything left you spend it freely however you’d like on random unbudgeted pleasures.

Because this system works on percentages (you can explore more about how to save money in other trainings so you’ve got a lot more to save, grow, and invest into your values) it scales perfectly as you grow you don’t need a new system you’ll always be well served with this method.


Conclusion

This is a foundation point to build on.

From here you can start applying principles like the Dream Life Ratio, The 3 Ways to Save on Taxes, The 3 Dimensions of Value & Cost Halo, the 5 Ways to Get Great Deals, etc. all found in our Get Deals training.

In my experience both in my own life and businesses ranging from my spa to events company to wholesale company, etc. as well as working with many other people and their companies we’ve found usually you’re able to reduce your costs or increase your value by at least 30%.

Do the math how much are you spending now?

Imagine if you were saving 30% of that.

What kind of a difference would this make?

All without taking on any risk and achieved quite quickly and easily.

Remember you could either go make more (hard) or simply keep more of what you’ve already made.

Ultimately you should go both but one is certainly an easier place to start.

If you’d like assistance reach out to us for the next steps.

Wealth Formula Booklet

The Wealth Formual


If you liked this article and would like to receive more like this each time we post, enter your name and email address:

Readers like you were interested in these programs:

Your Breakthrough Marketing Review
Profitable Sales and Marketing Machine
Facebook Ad ROI Training
Campaign ROI

We offer personalized one on one assistance.
Want help?

I want help with marketing
I want help with team
I want general business help
I want help with investing
I want help with money management

Other Popular Programs:

The Greatest Business Course Ever
Scale ROI
Team ROI
How To Become Rich Mini Series