Two years ago I started using this new concept called the two checking account system. The concept was where I diverted a fixed amount of my primary income into a fixed expense checking account and everything else into a variable checking account. The money flow worked pretty flawlessly, and allowed our family to automate all of our fixed expenses. Thus saving us a lot of time and money on paying our bills.
Being the visual guy that I am, I've progressed with the concept, and drew out how our income is being diverted, what amounts are being paid out from our fixed bills, and what other sources of income we have coming in.
As I've developed the concept over the years it has helped me to see how much money is going where and incentives me to reduce my bills. On top of that, it helps facilitate the development of my other income streams, and where to flow those other income streams.
Here is an hypothetical example of how my money flow looks today:
Most people's money flow is directly into one account, and all your bills, variable expenses, and emergencies all come out of that one account. In dealing with my own finances this way I found it hard to manage my money, and decipher what %'s were coming out for what type of expenses. On top of that it helped me develop my multiple income streams and allocate money towards specific causes. This can be anything from saving up for a new van, to saving for a down payment on a new acreage, or paying for private schooling.
Advantages of mapping out multiple streams of income
- Helps save for specific causes
- Encourages creation of other income streams
- Helps divert primary income to money making ventures (like Vanguard Managed Payout Funds)
- Helps you focus on bill reduction
- Tracks whether you are spending more than you make (if your variable account is losing value or not)
To start my layout of my money flow I used Microsoft Visio, but you can use Google Draw, Microsoft Paint (built into your Windows operating system), or even go old school and draw it out on paper. Regardless of your method, hopefully you will find laying this out visually, effective and encouraging for your finances.
I'd love to hear from our readers on what you think of mapping out your multiple streams of income. Have you drawn out your money flow before? Were you surprised? Why haven't you drawn it out?