Simple can be harder than complex. You have to work hard to get your thinking clean to make it simple. But it’s worth it in the end because once you get there, you can move mountains.”
Steve Jobs — BusinessWeek interview, May 1998
Have you ever received a notice from your utility company offering a “level-pay plan”? This bill-paying solution was created to help customers manage the dramatic ups and downs of heating and cooling bills over a year’s time. The level-pay plan allows you to pay the same set amount each month all year long, even if your actual expense fluctuates.
By leveraging some simple math, the utility company averages out the month-to-month cost variability over the year for you, and keeps everything in sync with a periodic review. This method is called “mean-based budgeting” and it’s very similar to the innovative concept that MoneySlinger is built on.
By comparison, virtually all other personal budgeting systems today use what’s called “zero-based” or “zero-sum” budgeting. This method of budgeting means you must continually adjust for random expense variability. You’re required to be an accountant, regularly allocating every dollar of income received, by adjusting parts of your budget upward or downward to continually net a balance of zero. Seems reasonable, but the downside is the detail-oriented nature of the system, and constant maintenance requirements, requiring you to continually make adjustments to your budget, and then of course, your lifestyle. You have to ask yourself, in this situation, are you managing your money, or is your money managing you?
There’s no reason why you can’t take the labor and time saving benefits of mean-based budgeting for a single expense, as used by the utility companies, and create a complete cash flow system to manage your entire personal budgeting needs. Doing so puts personal budgeting in another world. So much so that it deserves its own name: Speed-Budgeting™. You’re not doing what everyone else is doing faster, you’re actually doing 90% less work than everyone else. You’re reaching a reduced level of effort that’s impossible to achieve using traditional, zero-based budgeting methods.
Take a look at the chart above. The thin solid lines represent income and expense variability through the year. The dashed lines represent the same data, but now the income and expense amounts are averaged through the year. If you’re looking to have all this data help you make financial decisions, which pair of lines in the chart (solid or dashed) shows you most easily if you’re spending more than you’re earning…and that you’re living below your mean? A further explanation of averaging can be found here.
Mean-based budgeting turns personal budgeting on its head, and along with it, all the preconceptions about the “normal” things you had to do for personal budgeting. On top of that, what you thought you couldn’t do before, well, now you can do. For instance,
Let’s break RULE #1: MoneySlinger is a “big picture” personal budgeting application, not a bank account reconciler. These two functions are night and day (forest and trees). Traditional zero-based budgeting applications require continuous bank account reconciling in order to function…or they fail. There’s absolutely no need for this when using MoneySlinger (or the potential security risk and lack of privacy).
Let’s break RULE #2: Mean-based budgeting doesn’t require you to chase expense variability all year long. Since your working with averages, MoneySlinger pre-calculates 90% of your personal budgeting figures for the entire year, producing a few key figures which are routinely used every month…all year long.
And what about the other 10% of your calculations and efforts? MoneySlinger has that refined down to one single, elegant calculation. You repeat this same calculation twice a month and MoneySlinger tells you exactly what to do.
Let’s break RULE #3: No more category hell. Once you average each of your individual expenses into fixed monthly costs, you come to the realization that there’s no reason why you can’t combine these costs and manage them as one expense. So MoneySlinger groups all your expenses together into only one of three category types:
Once you’ve put your expenses into one of these three accounts, MoneySlinger determines a fixed, average monthly cost for each account.
Yes. When we said you’re managing the forest and not the trees, we meant it. Let’s review…
So you’ve eliminated what’s normally a tremendous amount of personal budgeting effort over a year’s time. But at this point it’s all on paper. So how do you manage these three expense accounts in real life when they actually consist of many individual expenses that are all due on different days? First, let’s take one step back…
Before we take the next step, it’s important to realize that when using zero-based personal budgeting methods, you’re managing your money from behind. This means you’re continually required to figure out where you were, so you can figure out where you are, so you can figure out where you’re going…with your money. This is the necessary process cycle of zero-based budgeting. The point being: you can’t move forward until you resolve the past. And why do you have to keep resolving the past? Because in zero-based budgeting, the past is always different.
Using MoneySlinger, you’ve created your own level-pay plan by averaging your costs over the entire year. In contrast to zero-based budgeting, you always know what your costs were last month. You know what they’ll be next month, and you know what they’ll be six months from now: the same. They’re exactly the same every month (this is the reason you’re not dependent on reconciling your fluctuating bank account statements). Working with averages is a complete game changer…and therefore, a rule changer.
But we just don’t break rules: we’re going to make a few too (this is where the steroids come in).
Well, remember we totaled and averaged all your expenses into one of three accounts? Even though each account may hold individual expenses due at different times of the month, you have to consider again, you already know what the average monthly cost is going to be for each of these three accounts. Yes? So…if you already know the monthly cost for each of these expense groups, wouldn’t it be nice if we could pay all of these expenses at one time? How?
Yes. You pay each of your three expense accounts, in full, by making deposits into three individual bank accounts. Each bank account is dedicated to one of MoneySlinger’s Blue, Red or Gold accounts. In essence, you’re paying in advance all your budgeted expenses by simply filling out three deposit slips. A few obvious benefits are:
Let’s review again:
You’ve consolidated and averaged all your expenses and costs for the year into three category accounts, and set up physical bank accounts for each into which you’ll make your “expense deposits”. But there’s still one last issue to tackle, and that is scheduling. Exactly when do you do all this great stuff?
So far, everything we’ve just tackled only has to do with your expenses, or the cash that’s flowing out the door. What about the cash coming in, your income? The ultimate benefit of MoneySlinger comes when you manipulate and streamline your income and income schedule to be in complete harmony with your expense schedule.
You might be saying right now “how can I manipulate my income schedule when my income schedule is out of my hands” or “my income has no schedule”. First, like the single bank account that you normally plop your income into at random times without thinking twice about, it’s time to rethink that again.
Who says that when you physically get paid, that you have to inject that money into your life or bank account immediately? Who says you can’t collect and hold that income to the side, and then bring it into your life on your own, self-determined cash flow schedule? The answer is, if you truly have control of your cash flow, you can. And with MoneySlinger, you do.
The best compromise you can make between weekly/bi-weekly/random income schedules and monthly expense schedules, is to create your own “in-between” schedule. This turns out to be a half month, normally called a semi-monthly schedule. So twice per month, you’ll be managing your money using the system we just described. MoneySlinger calls these two periods per month “Sessions”.
During each Session you make your pre-calculated deposits into each of your Blue, Red and Gold accounts, you log your income and Blue expense payments, and then pay all your bills for that Session. Done. Each Session sets you up financially until the next Session. You don’t have to do a darn thing until the next Session except collect and hold your checks and bills until the next Session…and then repeat. This simple activity repeats like clockwork every month and becomes routine and predictable…and fast. Very, very fast.
It may be hard to comprehend the benefits or where you’ll be in your money management efforts after putting in the time to first get your MoneySlinger budget set-up. But a few key points are this: After your initial set-up, the simple activities you execute for Session 1 (deposits and bill paying), and the activities for Session 2 (deposits and bill paying), are virtually the same every month. These become predictable, repetitive and memorable routines using the same few figures all year long.
After you’ve practiced your Sessions a few times over a month or two you’ll have a routine as well as manipulated little odds and ends into “your” schedule. At this point, more likely than not, you may get a nagging feeling that you’re missing something that you should be doing. You’re not missing anything beyond finding something else to do with all your extra time.
You’ve just passed the point of system set-up and practice, and have just reached a level of predictability, skill and speed unattainable using zero-based budgeting methods. Congratulations! You’re now officially Speed-Budgeting™, where money management becomes inconspicuous and darn near invisible in your life.
PS: I realize these are new concepts. If you’re interested in a one on one question and answer session…please contact me and we can set up an online meeting. You’ll be able to see my screen on your computer and I can walk you through the entire application and answer any questions you may have.
By the way, MoneySlinger is 50% Off for all U.S. military personnel
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