Flow: Organizing the Flow of Money
Success with money does not happen by accident, but it doesn’t have to be
difficult either.
Help your kids to make money a silent life partner rather than a nagging dictator that
constantly dominates their waking moments and keeps them awake at night, and
they will be much better equipped to succeed with money.
We looked at what you would teach your kids regarding the structure of Bank
Accounts in the previous chapter. The logical next step is to teach your kids the
benefits of automating the flow of money into and between their accounts.
The “Richest Man in Babylon” became rich because he always paid himself first.
You should be teaching your kids the benefit of automating the flow of money so
they can do likewise with no effort needed.
If your kids get into the habit of spending all of their income each week and
never put any money aside for future needs and investing, they will always be a slave
to money.
For money to be a silent life partner, income needs to be allocated automatically as it comes in, so your kids require no thought or discipline to
follow their money plan.
When starting out you might suggest to your kids that they use a four-account model.
1. Bills Account. Income is deposited into this account and all predictable
repeating bills are paid from here.
2. FFFI Account (FFFI = Food, Fuel, Fun and Incidental Expenses). A set amount of
money flows automatically from the Bills Account to the FFFI Account each
week and this is spending money. Fill the car with Fuel, fill the pantry with
Food, and spend the rest on Fun and Incidental expenses, BUT when the
money runs out, so do the fun and incidentals… until next week.
3. Long Term Savings Account – This is where your kids will automatically
deposit a small amount every week to save up to
replace tyres, batteries, driver’s licenses, white goods, and similar longer-term
expenses.
4. Savings Account. This account absorbs any remaining income and will
accumulate funds for Future Goals and/or help cover those ‘Life Happens’
surprises. For example, saving a house deposit as a Future Goal, or paying for
unexpected car repairs as a ‘Life Happens’ event.
In time, separating Goals money from Emergency money would be a natural
progression but when your kids are just starting out it is probably not necessary.
Income will most likely be low and accounts can easily be added later on.
Money that is automatically transferred from the Bills Account to the specific savings
accounts will be where it is planned to be with absolutely no effort or deliberation; it
just happens. The money that is allocated for weekly living (FFFI) will be
easily accessible and available to be spent in full each week.
If your kids have irregular income (which is quite common these days), automating
the flow of money can go a long way towards evening-out that irregular income. Adding a 5th ‘Buffer’ account that the irregular income goes into and then
automating a regular weekly transfer from that Buffer Account to the Bills Account
can be a way of doing that.
It’s a case of ignoring the surplus in the good weeks and
letting them pad-out the bad weeks in much the same way as a dam stores water
and allows a steady even flow to run downstream, even though the water level in the
dam rises and falls throughout wet and dry seasons.
Automation of money flow is the secret to easy implementation of the money
plan your kids create. In Topic 8 (Budgeting) we will look at how your kids can create
an overall plan for their income.
As a parent you can help by:
• Talking about the way you have set up the family’s banking and money flow
with your kids and explaining why you have it set up that way. If you have not
yet developed a plan for your money flow, it’s time you took steps to create
one. The Spending Planners Institute has a team of trained specialists trained
to help you do just that. You can choose the level of support from the super
low cost ‘Do-it-Yourself’ level through to full-on hand-holding, so there is an
option to suit anyone.
• Demonstrating the benefits of automation by letting your kids know when you
make a purchase, take a holiday, or achieve some other benefit a result
of being well organised financially and planning your spending.
By the time your kids reach adulthood they should:
• Understand the benefits of automating the flow of money into accounts set up for specific purposes.
• Already have bank accounts in place.
• Have a good idea of the type of expenses they will need to pay for in day-to-day adult life and how these change as stages of life change.
• Be aware that even though they will most likely get paid weekly, when they start out, they will have expenses that will occur monthly and beyond, and the easiest way to be prepared for these expenses is to set up an automated weekly money flow to a ‘Bills’ savings account that will cover these future expenses when they fall due. How to plan that account is covered in the Unit on Budgeting. Ultimately, setting up this account and creating a plan for the expenses it is intended to cover will save them a lot of time and stress
