Mastering Cash Flow

by administrator 1. July 2013 22:01

Budgeting.  Just the thought of that word can elicit groans and shudders.  Yes, there are those out there who love typing every expenditure into their spreadsheets or personal finance software programs, who gleefully save every receipt from every purchase, and who enjoy doing this every day.  But for some, the idea of taking the time to create and maintain a full-blown budget can be intimidating.

Anna Prior

Wall Street Journal


The key to financial success is adopting a cash flow plan that will guide your financial decisions on a day to day basis.  In addition, understanding and controlling how money flows in and out of your life will free you from financial stress and empower you to achieve your most important life goals. 

Nonetheless, traditional budgeting methods often lead to a sense of frustration and overwhelm.  The reasons are many:

• Most people lack the skills required to set up a budget and to monitor their progress

• Most people equate budgeting with the need for self-discipline and sacrifice

• Most people get discouraged by the level of detail required and the need to track every expenditure

• Most people are looking for ways to simplify their finances, not make their lives feel   more burdensom

An alternative approach that is getting a lot of media attention these days is “bucket budgeting.”  Anna Prior of the Wall Street Journal wrote, “While different names exist for this type of budget and many financial planners have their own take on this style, the bucket image is integral to First Step Cash Management™, a budgeting tool developed by Marty Kurtz, Matt Sivertsen, and Eric Kies at The Planning Center, a financial planning firm in Moline, Illinois.”  This user friendly system has proven to be an effective way to manage expenditures, reduce debt, and increase savings (

With the First Step Cash Management system, income flows into three accounts or “buckets.”  Each of the three buckets holds a specific type of money and each type of money has a specific use or purpose.  While the uses are all different, all three buckets are interrelated.

The Static Account™ bucket holds money that has been spent, or has been agreed to be spent, at some point in the past.  These are our regular monthly expenses such the mortgage, utilities, insurance, home equity loans, student loans, and auto loans.  Money is also allocated to this bucket to pay down credit card balances. 

In contrast, the Control Account™ bucket contains money that will be spent within the next seven days.  Control expenditures include things such as groceries, gas, entertainment, and eating out.  Lastly, the Dynamic Account™ bucket stores money that will be spent in the future for goals such as retirement and education funding, vacations, gifts, and special purchases like furniture and appliances.

Once this cash flow system is set up and tweaked based on individual priorities and circumstances, the system goes into auto pilot and detailed tracking of expenditures is not required.  The result is a simple decision framework that brings clarity and purpose to personal finances.


Happy Money

by administrator 1. July 2013 21:55

If you think money can’t buy happiness, you’re not spending it right! At least, that is the conclusion of researchers Elizabeth Dunn and Michael Norton, two rising stars in of the world of behavioral science.

In Happy Money, Dunn and Norton provide an engaging and often entertaining tour of the latest research that shows, from the standpoint of personal well-being, how we can get the biggest bang for our bucks.

They explain, “By focusing on how to spend the money you have rather than how to accumulate more of it, our perspective departs from the obsession with chasing increased wealth in the pursuit of happiness.”

Their own research, and that of several colleagues, revealed the following five key principles of happy money:

1. Buy Experiences – Mark Twain was right when he wrote, “Twenty years from now you will be more disappointed by the things that you didn’t do than by the ones you did do.” Scientific studies demonstrate that purchasing experiences (such as trips, concerts, and special meals) provides longer lasting happiness than purchasing material goods (such as houses, clothes, and electronics).

2. Make it a Treat - When something wonderful is always available, we tend to take it for granted. For example, we tend to savor a latte less if we have one every day rather than reserve it for a weekend indulgence. The authors explain they are not advocating self-denial, but rather looking for ways to view whatever we purchase as a special treat.

3. Buy Time - By permitting ourselves to outsource our most dreaded tasks, our money can transform the way we spend our time and free us to pursue our passions. Before making any purchase, Dunn and Norton recommend asking ourselves how it will affect our use of time. They write, “When people focus on their time rather than their money, they act like scientists of happiness, choosing activities that promote their well-being.”

4. Buy Now, Consume Later – The French verb se réjouir refers to the experience of deriving pleasure in the present from anticipating the future. That is because we tend to “derive more joy from things coming to us in the future than from things already received.”

However, our social norms and ubiquitous use of credit cards have encouraged the opposite mindset--“consume now and pay later.” By reversing this trend in our personal lives, we will not only save money, but we also reap the many rewards of anticipation.

5. Invest in Others - New research demonstrates that spending money on others provides a bigger happiness boost than spending money on ourselves. And, surprisingly, Dunn and Norton found that this principle holds true in an extraordinary range of circumstances including both rich and impoverished countries. Their research demonstrated that Investing in others can make individuals feel both healthier and wealthier.