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Understanding Buckets and Money Flow

by Kevin Hoctor

MoneyWell has been on the market for nearly a month now and I'm learning what people love about it and what needs to be understood better. The most often asked questions are about how buckets work. That seems fair, so let's dig into the process a bit.

What are the Buckets for?

If you've ever heard of someone labeling envelopes with categories of spending (e.g., rent, groceries, clothing, etc.) and sticking the money from their paycheck into them, then you understand the basics of MoneyWell buckets.

To control how much you spend, you only give yourself a limited amount each month for each category. Each bucket represents a category. So if you decide to only spend $400 per month on groceries, you would give the bucket labeled "Groceries" a $400 planned amount and then take $400 each month from your "Salary" bucket and put it in the "Groceries" bucket. Now as you spend money at the supermarket, you assign those transactions to that bucket and the amount remaining decreases until you have nothing left to spend. Visually in MoneyWell, you'll see the bucket tip over and dim out to show it's empty.

The hardest part of controlling spending is knowing where all the money went. The design of MoneyWell is all around giving you a visual of where you have money to spend and where you don't. The main window shows you how much is left in each bucket without any need for running reports. Just look at the buckets to know if you are on track.

Rollovers and Money Flows

Okay, buckets aren't that tricky, but how do I get money into the buckets?

When you add a transaction to MoneyWell, you should always assign it to a bucket. If that transaction is a deposit, then you are adding money to the bucket and, conversely, a withdrawal removes money from a bucket. So all you need to do is track all your transactions and put them in a bucket and MoneyWell takes care of the rest.

When you first start using the program, it will ask you about doing an initial rollover. Rollovers are a way to keep money flowing from month to month. You may not spend all your budgeted grocery money this month and you shouldn't lose that money for next month so MoneyWell rolls it over and starts your next month's grocery bucket with the extra cash from the previous month. The initial rollover is just a way to tell MoneyWell how much money you have on hand right now. This may be a different amount from your bank balance.

When you allocate money from your income buckets to your expense buckets, it's like cashing your paycheck and dividing up the cash into stacks and dropping those stacks into different buckets. These are called money flows and happen any time you want to move money from one bucket to another. After you allocate income, you'll see the expense buckets turn upright and show an amount you can spend for each.

Setting Bucket Limits

How does MoneyWell know how much to put in each bucket?

To effectively control your spending, you need to create a plan for limiting your spending in each bucket. The spending plan in MoneyWell is that plan. It's like a budget, but more flexible (this is discussed more in other articles). Your spending plan effectively draws a "fill to here" line on each bucket. When you allocate income, you are taking money from your income buckets and filling the expense buckets to the fill lines.

This helps you automate the process and also forces you to make some decisions about where you want to spend your money. You will find out quickly if your planned spending goes over your actual income.

Let It Flow

Let's wrap up by giving a simple overview of your money flow. Here's what you have to do once in the beginning:

1. The first time you run MoneyWell, you do an initial rollover to tell it how much money you have on hand right now
2. You create a spending plan and decide how much you want to spend each month in each bucket, effectively drawing a "fill to here" line on each

Now you will do the following items throughout each month:

1. You enter all your transactions as either deposits or withdrawals and assign each to a bucket
2. After you enter a deposit transaction to an income bucket, you can allocate income, which flows your money into your expense buckets
3. As you spend money, you watch your buckets and stop when each specific bucket tips over
4. If you need extra money for a bucket, you can take money from another by dragging the first to the second to create a money flow (here's a bit of that flexibility compared to a budget)
5. At the start of each month, let MoneyWell rollover the remaining cash in your buckets to the new month

Once you get used to the way money flows in and out of your buckets, it will become very easy to adjust your spending. There is also a graph on the main window that gives you historic feedback on your spending habits that you can use to adjust your spending plan whenever necessary.

Remember to track every transaction, adjust your plan when things change, and never spend more than you have in your buckets. Do these simple steps and you will take control of your spending.