To make better decisions with your money it helps to set up a financial plumbing system.  What’s financial plumbing?  Simply put, it’s moving the right monies to the right account through automation.  Setting it up requires awareness of what’s coming in and what’s going out.  With some trial and error, you may create ACH instructions to push dollars to accounts based on purpose.  Once created, it’s a game changing approach to financial decision making, spending, and managing cash reserves.

What you choose to spend, invest, and save each month decides what flows where.  Each of your accounts should have a job description to support short term spending and savings.  Tracking all activity from a single account is demanding, here’s an alternative.

Allow your compensation to be deposited to your operating account.  You may also choose to make investment contributions from this account.  After paying yourself first, consider automated transfers to the following accounts:

  • Bill pay: where all electronic bill payments take place
  • Emergency savings: preparing for the unexpected
  • Travel/home/big ticket: where the rest of the money goes

Some families charge all monthly expenses on a rewards card and then pay it off.  For expenses that are not charged, such as utilities, mortgage, and insurance premiums; the bill pay account will tell you exactly what you are spending.  It’s easier to become work optional, accept a new job, and/or repurpose your time when you know your expenses.  Reviewing your credit card statements and bill pay account supply answers on what it takes to cover the essentials.

Your emergency savings account can hold as much or as little as you feel comfortable with.  You may make withdrawals from this account overtime so it’s good to consistently fill it up.  At some point, you may reach a level of “enough” and may redirect ongoing cash to another purpose.

The travel/home/big ticket account is a nice place to prepare for larger expenses that may be on the horizon.  Excess cash tends to evaporate when left unattended in an operating account.  By segmenting out upcoming expenses you may ensure you have monies to spend when the time is right.

Cash flow drives everything regardless of your age.  At some point, you may choose to stop working or reduce your hours.  Your operating account will still require dollars to maintain lifestyle and spending choices.  Social Security generates income, but this often arrives later to maximize benefits.  How do you continue to move money to your operating account through retirement after you stop working?

Think of all your investment accounts as a reservoir as you enter retirement.  The sustainability of your reservoir will be decided based on how you select, monitor, and manage your investments.  Systematically liquidating investments creates the necessary cash to refill your operating account each month.  Continuing to move monies to your bill pay account and travel account will allow you to spend with confidence when you are no longer working.

All plumbing systems aren’t perfect as periodic leaks make occur.  Having a process and plan to managing your monies may allow you to proactively make better decisions with the dollars you have.  Want to learn more, click the link below to schedule a chat.


Advisory services through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Cambridge and Flowerstone Financial are not affiliated.

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