I’ve been wanting to talk about this for about a year now. This is going to be a bit more dense than some of my other writing and will have an accompanying YouTube video at some point. Let’s get to it…
Near the early stages of my financial independence journey (which I am still on), I had a problem. I was not able to put a large enough percentage of my income towards investments, and I didn’t even know how much I could afford or was currently putting towards it. I didn’t really even know how much total income I made and exactly where it went. This financial account structure was my solution to this problem.
I sat down one day, pulled out my notebook, and began brainstorming an idea I had. This idea was inspired by how I used to manage email when I was having to handle a large amount of it. The basic building blocks of this model was that all my families income goes through a checking account that I call the “Inbox”. The idea of this account is that it’s my holding account until I distribute the funds to various other single-purpose accounts. I’ll discuss my process for doing this further down, but first let me cover my other accounts.
The rest of the accounts are divided into two categories. First, is the expenses category. I have two accounts in this category (both checking accounts), one is for personal expenses and the other is for my business expenses. I split these up this way so I can manage our family expenses as controlled as possible in YNAB and manage my business expenses seperately in Wave. The second category is investments. I’ve also broken this down into two accounts. The first is my “storage” account for real estate investments (or any other investments requiring larger chunks of cash). This account is a standard savings account (with Ally Bank, because they are great and their rates are typically one of the highest). The other investment account is my stock portfolio at M1 Finance.
By splitting my accounts into these categories I’m able to very explicitly control the percentage of my income that goes to each. The idea is basically that I “pay myself” out of the inbox each month. My target when implementing this was to be able to put away 40% of my income towards investments. This is a little more complicated with any income that is not a monthly occurrence (think RSU’s, dividends, bonuses, etc.), so the target is an annual target.
I manage this whole this with one big spreadsheet (or trae-sheet as some would call it). This sheet is basically my control panel for the flow of money through my accounts. When I have a change in income I will update it on this sheet, when I do that it will automatically adjust how much I’m able to put into investments based on my fixed-expense numbers for my expense categories.
On the first of each month I have a process that I go through to reconcile all my accounting software. This process ensures everything is accurate and up-to-date (this is especially important in YNAB). Once that is done, then I go down the list below and transfer money from the Inbox to each of the accounts in the listed order, making the balance of the account match the target balance specified. Once this is done, the money in the Inbox is not touched until next month.
It took quite a while to save enough money to be able to buffer money in my Inbox by a whole month, but once I hit this tipping point the process has been AMAZING! I’ve moved from a target of 40% invested to now being able to confidently invest 57% of my income.
I hope all this made sense and I’ll attach the YouTube video to this as soon as I get it done.