Dividing Income

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After recently reading "The Rules of Wealth" by Richard Templar and a post from Tim Ferris of Automated Finances, I have been motivated to divide up my personal income into three categories:

1. Living expenses (40%) <- what I need to live on a day-to-day basis, small ticket (<$100) items.
2. Sunny day fund (30%) <- longer term, bigger ticket expenses (vacations, gadgets, etc).
3. Rainy day fund (30%) <- for when shit happens.

And have created three separate bank accounts for each of these. By having the online accounts visually labeled and my income automatically divided up and transferred between the accounts, I have found it releases a psychological burden of knowing how much I have in each area. The only question now is whether the %'s are appropriate, but I think I need time to figure that out.

Do other people here do something similar?

 

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[fanocks2003]

After recently reading "The Rules of Wealth" by Richard Templar and a post from Tim Ferris of Automated Finances, I have been motivated to divide up my personal income into three categories:

1. Living expenses (40%) <- what I need to live on a day-to-day basis, small ticket (<$100) items.
2. Sunny day fund (30%) <- longer term, bigger ticket expenses (vacations, gadgets, etc).
3. Rainy day fund (30%) <- for when shit happens.

And have created three separate bank accounts for each of these. By having the online accounts visually labeled and my income automatically divided up and transferred between the accounts, I have found it releases a psychological burden of knowing how much I have in each area. The only question now is whether the %'s are appropriate, but I think I need time to figure that out.

Do other people here do something similar?

Yes:

30% - Investments/Savings
30% - Tax (most of my income is capital gains or passive income related).
40% - Fixed and Variable costs

 

[gofalls]

I would suggest keeping it simple. Maybe have 1 account with everything going in and out of it and categorize it using an online banking feature that any big bank will have. At the end of the month/week run the report and you can save time and will be more likely to continue the process b/c of the simplicity.

I divide my income into 2 categories.
1 – hours for dollars
2 – passive

I focus only on a single ratio, the Wealth Ratio. The “Wealth Ratio†is the amount of passive income divided by income needed to live (including sunny day and rainy day).

Passive income / (living exp, sunny day, rainy day) = wealth ratio

If I have a Wealth Ratio of 1 then I have enough passive income to be a wash without trading Hours for Dollars. I would focus on getting that Ratio up to 1.5 then 2 and so on. I am not concerned or do I strive to increase or decrease the percentage of an expense or savings relative to my personal income. I strive to increase my passive income relative to my Quality of Life Expenses.

When I was starting out with accumulating passive income I started with obsessively tracking my ability to convert earned income into Passive income.The book GOOD TO GREAT talks about measuring with simple and few ratios that really tell the story. If one month my Rainy Day income goes up by 2 as a percentage of income how is that really affecting my END goal? It might take about 3 hours of work time off a retirement plan? If you measure in Inches you will get Feet, If you measure in Miles you might get around the world.