Here’s Why You’ve Failed to Save Even $200.

Let’s start with the Second Principle of Business:

Push costs low.

You’ll see why later.

Just run with me for now.

At some point in your investing journey, you’re going to learn a little (or a lot) on saving.

In fact, it’s the largest hurdle most investors are struggling with.

I hate to admit it but here’s the thing.

If you’re going to run your dividend growth portfolio as a business with sky-high expenses, it’s going to eat away whatever revenue brought in.

That leaves nothing left as profits and cash flow.

And you’ve guessed it right.

I am the biggest fan of saving.

Why?

Because I love seeing my money working for me.

And I know you might not be a fan of saving at all.

So is my fiancé.

It can be very tedious depending on how you approach it.

Therefore I’ll try to keep it as simple as possible and I suggest you do the same.

Not to dive into the nitty-gritty but I’ll give you a quick synopsis of how to put saving money on autopilot.

My Fiancé.

“Here’s how we’re going to manage our money,” I announced to Ellie — the fifth time this month.

I was holding the book “The Barefoot Investor” by Scott Pape in my shaking hands, trying to hide my excitement after discovering the New World of saving money.

“Uh-huh.” she replied as she usually does whenever I talk about anything related to money.

By this point, we’ve tried (well, actually, I forced Ellie to) too many versions of budgeting.

These run on a similar, Zen-like premise that in order to achieve financial freedom, you’ve got to be acutely aware of every penny coming in and going out of your life.

They involve tracking down every last dollar that you’ve spent on a spreadsheet, reviewing it on a monthly basis, and condemning yourself for purchasing the pack of gum on your way out of the cashier for $2.63.

Oh and remember to breathe in and watch that breath disappear into the abyss as you let it out — just like those unnecessary dollars you’ve recorded down.

Honestly, I myself have never been able to stick to one for any meaningful period of time.

The process of maintaining a “budget” in the conventional sense is, frankly, plain overwhelming.

So I cannot be such a hypocrite as to tell Ellie off on her lack of “discipline”.

“I’m going to be clear on this. I will not have you dictate how I spend the money which I’ve put in the effort to spend,” Ellie declared.

You bet I’ve gone through with her the Insights on our relationship with money and paid work and how to be free is to have enough.

But as I listen to the words coming out of my mouth, there’s just something counterintuitive about budgeting that’s everything against the notion of “freedom” in financial freedom.

Does pushing expenses low have to be dictating, constraining, and tedious?

To have a successful marriage (yes, financial management is an essential part of the bigger picture within such relationships), I knew we needed a simple, hassle-free expense management system that could operate on autopilot in the long term.

And I found it from Scott’s The Barefoot Investor.

The Six Bucket System.

Well, there were three buckets in the original system.

I separated out two more in as Ellie and I adapted the system to our lives to make things even simpler.

Our entire expense management system consists of dividing our income into five buckets once we’ve received our monthly paycheck:

1. The Monthly Expenses Bucket: for rent, food, transportation, water, electricity.
2. The Splurge Bucket: for satisfying our innate need of flinging cash on unnecessary stuff.
3. The Smile Bucket: for enjoyment that requires some time to save up on (yearly family vacation, fancy birthday / anniversary dinners)
4. The Fire Extinguisher Bucket: for emergency uses (medical bills, repairing a leaking sink) or lump sum payments (school fees, taxes, down payment).
5. The Mojo Bucket: three months’ worth of expenses so that we know that our quality of life will not be affected in the unfortunate (or fortunate) event of being unemployed
6. The Grow Bucket: for dividend growth investing.

Most people only have one money bucket.

Their pay comes in at the beginning of the month, money goes out to pay for all the “necessary” spending, and they hope some is left over to put towards saving and investing.

Most of these “necessary” spendings are impulsive.

And there’s nothing wrong with that.

That’s just human nature.

We simply need to find a way to satisfy our impulses AND balance that with our financial lives.

The problem with the One Bucket System or any expense tracking system is that you’re telling yourself to rely on your willpower to suppress that spending impulse 24 hours a day, 7 days a week.

When you take into account the fact that we’re bombarded by ads at an ever-increasing frequency on the television, on the internet, and on our mobile devices — we are setting up our willpower for failure.

So if you’ve failed to save even just a couple hundred bucks every month, here’s what you need to know.

You are not a failure.

Your method of saving has failed.

Let’s make that distinction crystal clear.

And I’ll walk you through a fool-proof saving method.

How to set up the Five Bucket System?

This is the setup for those working as a 2-person team, like Ellie and I.

You can scale this system to include more or fewer individuals.

Step 1: Open 7 bank accounts and 2 brokerage accounts.

And apply for a debit card for each of them.

Yes, you do need that many.

Now push your dropped jaw back to the place it belongs.

And don’t act like this is anything difficult.

With the advent of virtual banks (banks that operate entirely on electronic platforms without the costs of maintaining physical branches), opening up a bank account is a breeze that takes 5 minutes on your mobile device.

These virtual banks enable you to earn a much higher interest on your deposits.

What’s not to love?

Here’s the breakdown for the respective roles of these accounts:

• Monthly Expenses Bucket: 2 payroll bank accounts, one for each person, where your monthly salary will be paid into.
• Splurge Bucket: 2 bank accounts, one for each person.
• Smile, Fire Extinguisher, Mojo Bucket: 1 bank account each, shared between 2 people.
• Grow Bucket: 2 brokerage accounts, one for each person.

Step 2: Setup an excel spreadsheet to manage your Buckets.

It’ll look simple like this:

You can do without the coloring.

It’s just my thing.

I LOVE spreadsheets.

Step 3: Decide how much money goes into each Bucket every month.

Our’s look something like this:

You can get the Six Bucket System Template by clicking here.

And here are some yardsticks when it comes to money allocation.

The monthly Expenses Bucket: 50% of your monthly income.

• Housing (rent or home loan): 30%
• Ultilities (electricity, gas, water, broadband, phone plans): 5%
• Transportation: 5%
• Food: 10%

You might have noticed that Ellie and I are aiming to spend less than 30% of our combined income on the Monthly Expenses Bucket.

You can say that we’re a stingy couple.

You can let yourself off the hook because we’re earning an above-average income.

That’s all true.

So are all excuses.

The point is that you should work it out to suit your income and lifestyle.

And most important of all, to reduce your living expenses wherever you can.

The Splurge Bucket: $50.

This money is to be set aside so you can look at your impulsion in the eyes and say: go buy whatever that makes you feel good.

Lifelike inflatable elephant, bubble tea, finger covers for cheesy food, ostrich pillow, finger hands finger puppets.

Really anything you want but know for sure that you don’t need.

And remember, your Splurge Bucket has its own debit card so that you can easily whip it out and buy beers for your mate when the round is on you.

On the same token, when your Splurge money for the month is gone, it’s gone.

You can now look forward to next month’s Splurge.

But there’s no cutting into your other accounts.

You can tell me that $50 is far from enough compared to your usual splurge.

And I’ll tell you, hey, there’s nothing preventing you from saving up what’s in the Splurge Bucket over the past 3 months to buy your favorite Air Jordans.

The Smile Bucket: $100.

This is for splurges that take longer to save up for.

Travelling, weddings, family gatherings.

It’s called the Smile Bucket because every time you think of what you’re saving up for, you can’t help but smile.

Don’t look down on this $100 per month of savings.

Ellie and I saving $100 per month each would already have guaranteed us an annual vacation to anywhere in South East Asia, Japan, or Korea.

The Fire Extinguisher Bucket: 10-20% of your monthly income.

You’re going to use it to put out financial fires.

These could be your credit card debt, your mortgage, or your home deposit.

Saving up 10-20% of your monthly salary will give you that invincible feeling that you can tackle whatever the Gods of Finance are going to throw at you.

The Mojo Bucket: stock up for 3 months’ worth of expenses within 6 months.

For Ellie and I, 3 months’ worth of expenses totals up to a sum of $10,800 ($3600 monthly expenses × 3 = $10,800).

To save up to this amount within 6 months, Ellie and I would each have to put in $900 into the Mojo Bucket every month ($10,800 ÷ 6 months ÷ 2 people = $900).

And remember, this portion of savings would be completed over 6 months until you ever need to use it, then this portion of your monthly income can be directed to your Fire Extinguisher.

After you’ve filled your Mojo Bucket, you’ll get your Mojo back.

You know the feeling — the spring in your steps that announces, “I don’t sweat about money.”

The sad truth is that most people never experience the feeling of Mojo.

I have a feeling that you are different.

The Grow Bucket: 25% of your monthly income.

This is the portion that will go into your business of dividend growth portfolio.

As with monthly expenses, you’ve got to tailor this amount to your specific income level

You’ll see that Ellie and I have managed to consistently plow more than 60% of your monthly income into our dividend growth portfolio.

And don’t think that it was easy to get to where we are today.

Far from that.

It took conversation, discussion, arguments (sometimes), balancing, compromising, deferring gratification, and most vital of all sticking to other parts of the Six Bucket System through thick and thin to slowly but surely gearing up our Grow Bucket.

Step 4: Manage your savings 10 minutes per month

Believe it or not, you’ve already done the heavy lifting in the Six Bucket System.

Now it’s just about repeating this 10-minute routine every month, turning it into a habit, and letting the magic of autopilot take place.

In this 10-minute routine, here’s what you’ll need to do:

1. Your monthly income will come in through the Monthly Expense Bucket (payroll bank account).
2. You will distribute the amount of cash to the respective buckets as planned.

That’s all.

WHAT?!

Yes, that’s all.

Why Does It Work?

Don’t for a moment be fooled by the simplicity of the Six Bucket System.

Simple is to minimize your reliance on your willpower.

Because willpower is not reliable.

Think about the time in college when all your friends were trying to learn to play the guitar.

It was easy in the very beginning — looking up guitar chords on Ultimate Guitar, watching YouTube tutorials, going for band practices.

Your skills probably got a lot better in that initial phase until you hit a rock.

Your fingers becoming painful with calluses, that F sharp major chord just a bit too difficult to hold, you need time to date your crush (because you don’t need your guitar skills to impress her anymore).

Then everything crumbled down after the first two weeks along with the dream of becoming the next Jimi Hendrix.

True story because that F sharp major chord really tripped me up.

You see, willpower is like a muscle that becomes fatigued from overuse.

It is limited.

Once you’ve used it up, it’s gone along with any long-term goals you’ve got in the pipeline.

And willpower is fair play for everyone.

It’s not like people who succeed have more willpower than you.

They simply use willpower to their advantage.

Going back to the guitar story, they don’t use willpower to learn guitar per se in the short term.

They use that limited willpower to set up better daily routines and habits for practicing guitar, which becomes automatic in the long term with less thought and less conscious energy.

The Six Bucket System is precisely such a routine and habit that require our willpower to set it up once and then demands little additional willpower to maintain it down the road with consistency in the long term.

You just need to muster up your willpower once a month for 10 minutes and use it all up to make sure you distribute your monthly income into the buckets.

When the urge comes to splurge on the latest Logitech MX Master 3 mouse?

Oops!

The debit card for your Splurge Bucket doesn’t go through because you’ve run out of funds.

Now you also have the cashier and the ten other customers waiting in line staring at you telling you not to splurge.

The best thing?

You’ll not be able to touch your partner’s Splurge Bucket for your own satisfaction because that rests safely in another bank account.

I know what you’re thinking, you sneaky little weasel.

In a similar vein, there’ll be more barriers against yourself if you tried accessing the funds in other buckets for unrelated purposes.

You what I did there with the 7 separate bank accounts and debit cards?

Savings = Freedom.

That’s the beauty of this top-down approach to saving money with the Six Bucket System.

It enables you to proactively set up mechanisms against the temptations of consumerism while you have the greatest willpower.

This is as opposed to the more traditional expense tracking approach that is bottom-up, more passive, and leaves yourself vulnerable at moments of temptation.

To some, and even to myself at first, all these boundary-setting appear counterintuitive to our pursuit of financial freedom.

Limiting our spending sounds like anything but freedom.

So let’s fix this mental glitch that society has imposed upon us.

Financial freedom is not about spending however much we want, on whatever we want, whenever we want.

Financial freedom is about having options in life — the option of both saying yes and saying no.

Imagine you’ve got enough money in the bank and you’re free to tell your manipulative, micro-managing boss to piss off because you believe you deserve better.

Imagine you’ve got enough money in the bank and you’re free to keep your house and car because you can cover your payments after you’ve quit your job.

Imagine you’ve got enough money in the bank and you’re free to have the luxury of time while finding a new job that suits you or start a business (even if the bank won’t lend to you because, ironically, your habit of savings means you neither have a debt trail nor a credit record).

I don’t know about you, but the freedom to options, rather than the freedom to buy whatever I want, is the sort of financial freedom that I’m looking for.

If we’re on the same page, let’s move back to the First Principle of Business:

Earn more revenue.