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Managing Uneven Cashflow

cashflow management Aug 16, 2023

Managing your money as it comes in and goes out can be challenging at the best of times.  It's even more challenging when your income fluctuates and some of your expenses do also (when they are linked to your income).  This is particularly the case if you are employed casually, are self-employed or run a business.

A well known cashflow management approach for personal finances is the "Bucket" method, which is basically the "cash in an envelope" method that our grandparents were most likely to have used.  In today's modern more cashless / online society that we live in, it isn't practical to keep money in envelopes.  Not to mention missing out on the current higher savings interest rates.

So, for personal finances, the typical "buckets" for your money as a percentage of your income could be:

  • Bills & Debt (about 70%)
  • Emergencies (about 10%)
  • Fun (about 10%)
  • Kids' Future (about 5%)
  • Investing (about 5%).

This will vary based on personal circumstances, but you get the idea.

Where your income is pretty steady and the amount reliable, you could theoretically automate these percentages going from your working bank account into the separate bank accounts for each of these above, each month.

From a business perspective, you're likely to need accounts like:

  • Operating Account (where all revenue comes in and expenses get paid)
  • Tax account (where say 35% of your revenue goes, so you can pay GST and income tax)
  • Profit account (where the profit goes that you don't pay yourself as salary)
  • Investing account (where you can put extra income that you can use to reinvest in either your business or other investments)

The percentages on each of these will vary based on your business model.

Where the concept of automation falls down is when the revenue is variable, which means that your profit (revenue minus expenses) isn't the same each month, so you can't set up automatic transfers.

What you can do though, is schedule time in your calendar once a month to calculate how the percentages translate into dollars for that month, and then manually transfer these amounts into the accounts above.

 I'm usually a big advocate for automating saving and investing, but when it comes to running a business and the ups and downs of revenue and profit, it's often better to manually make these buckets work, so the system continues to benefit you.