The simplest method to have more money is...
Alberto Costa breaks down the six buckets system: divide your income into Necessity, Education, Investing, Emergency, Fun, and Charity. A simple example splits it 55%, 10%, 10%, 10%, 10%, and 5%. Save first, spend second, and reinvest returns.
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Hi, welcome to this new video. The topic today is financial planning. Why? Because investing and trading is very important. And there is something that is even more important and is often overlooked. And this is how to do financial planning. That means how do you manage the money that you get, for example, from your salary? Because if you do this successfully, then it will be much easier for you to have money to invest. And if this is your objective, to achieve financial freedom. Now, before we start, if you have not done it already, subscribe to this channel and also hit the bell. So you will be notified when I upload a new video. Let's start. The question that I have for you is this. When you are working, how will you spend your money, right? And then you can see here there are different ways you can do that. Okay, so for example, you can see here, you can spend your money. You can do shopping, right? You may buy expensive stuff like phone that now you know the iPhone can cost thousands of dollars. You can go party. You have many options. The question is, is this really the smartest way to spend your money? So let's find out. We have three ways to spend money. Basically, the number one is whenever we get something, for example, a salary, then we spend everything, right? And is it smart? Well, not really. And you can see here, the said Pikachu. Well, I use Pikachu because everything is black and yellow. And then I say, well, Pikachu may be nice here, but yeah, Pikachu said means no smart. Then you have a second option. First you spam and whenever is there is something left, you save it. Well, this is definitely a better option. You can see the Pikachu face not crying anymore. But is not the ideal. What is the ideal option? The. The idea is that first you save and then you spend. This is the best way to manage your money. And how to do that? Well, what I want to show you is this idea called the six buckets. It's not new, but it may be new for you. So it's good that you have a look. The idea is this. First you get your salary, right? And your salary can be. Well, it can also be other sources of income, but mostly your salary. Then whenever you get your salary, the first thing you do is you allocate your salary in these six buckets. So we have here the necessity bucket. Education, investing, emergency fund, and finally charity. I put here an example of the allocation that you can have. So 55% for the necessity, you can have 10% for education, 10% for investing, 10% for emergency, same for fun and finally, 5% of charity. This is just for you to have an indication. Of course, you can adjust according to your situation. For example, if for you 55% is really a lot, then you can maybe put more in your investing. So it really depends on, on your situation. But it's good if at the beginning you think about how much you spend, how much you need for, for example, to buy stuff, and how much you spend for fun. And when you have a rough idea, you can define this percentage. Okay, now what is each bucket? Let's have a look more in detail. Necessity bucket is what you need for daily life. So it can be your clothes, it can be shoes, it can be the food that you need to buy to eat every day. Now, be careful here that when I say clothes, I'm just saying clothes that you need doesn't mean expensive clothes, fancy shoes that you don't really need, but you like. This is not from this bucket. And same for food. If it's food that you buy to eat, fine. If he's having a dinner with friends in a fancy restaurant, well, he will be taken from another bucket. And I will show you later which one. Okay, so let's move on. Education bucket. Education bucket is the money that you use for, for example, books or courses or when you want to learn something new. Of course, when I say learn something new, I mean learn something that is good for you or for improving because the more you, the more you learn, the more you earn, as Warren Buffett said. And, and then is very good that if you can put at least 10% of your money for education. Okay, now what is the next one? Let's have a look. Investing. Okay, the investing bucket is basically the money that you put there and you will invest for, for example, you will use for investing your portfolio, for your trading, whatever it is. So then when you use that money, the strategy depends on you. But the idea is to save at least 10%. I think this is the minimum. If you can save more, better, but no less than 10%. Okay? And this is for your future, because when you accumulate money here and then you invest, and then hopefully you have a strategy that can generate some return, the compound interest effect will grow, will let this bucket grow. Now, there is a thing here to notice, because this bucket is for your future. You cannot spend the money that is here, okay? It's the only bucket where you don't spend the money that is here. And there is an additional rule. Every money that every return that you get from this bucket must be reinvested in the Same bucket. Okay, so it's not that if you have $1,000 and then you get 10%, you take out this $100 and you use it. No, that 100 will stay here. Because this is the secret to leverage on the compounding effect. Next, we have emergency bucket because we never know what will happen. So it's good to have some cash or cash equivalent located somewhere so that if something happened, an accident, or you broke your car, you have some money for that. Then we have the fun bucket. So as I said before, let's say you want to buy some fancy clothes, you want to have a dinner with friends in some expensive place, this is where you have to take the money from. It's not a necessity, it's the fun. And how to know if it's necessity or fun? Well, necessity is do I need. Right. Usually fun bucket is something that you like or you wish to have, or it would be nice if. But you can survive without that. Finally, we have the charity bucket. Now you may wonder, why should I do charity? I don't believe in it, or I don't have enough money for that. Now, the thing is this. There are always people that are less fortunate than us. That's clear. If you do charity, I really believe that the more you give to others, the more you get back. So it's good idea to allocate, I would say at least a 5%. But this account can be adjusted and you can donate to church, to charity, to less fortunate people, whatever it is. But the thing is, really, if you give to others, you will get back much more. Now, what are the rules? Now that we have seen, what are the six buckets? So the number one rule is that everything that you earn must be divided into the buckets. So as I said before, not just the salary, let's say that you get a present for Christmas that is closed, and then you get some money. Then also this money must be allocated in these buckets according to the percentage that we have seen before or that you will decide yourself. Now, the only exception, remember, is the investing bucket. The money that you earn from the investing bucket must stay inside the investing bucket. That's the only exception. Number two, you can only spend the money if you have that in the correct bucket. What do I mean by that? Let's say that you want to go to a trip with your friends, and the trip is like $1400. And in your fun bucket, you only have $1000. So what do you do? Well, let me tell you what you don't do. First, you cannot take $400 from another bucket. This is not allowed. Okay, so if you want to go to this trip, well, you have two options. Number one, you say no because you don't have enough money in the bucket. Number two, you find some ways to generate those $400 that you need. Now, one point I want to clarify. It doesn't mean that you have to generate $400. Because remember rule number one. Everything that you earn must be divided in the buckets. So if you need $400, right? And here you know that you put 10% of what you earn, then you need to generate $4,000. So that when you split, this will give you the $400. Now why is this important? Because this will give you the motivation to find additional ways to generate more money. That's why it's important. Now for this rule, personally, I am a little more flexible and I tell you why. Sometimes you have an expense, for example, in the education, you want to take a course and is expensive. But you know that is once in a year, right? Now, if it's happening at the beginning of the year, you may not have enough money in the education bucket. But you know that if you don't do anything else, any other course for that year, eventually what you put every month for the rest of the year will cover the expenses. So what I do, I allow myself to go negative on the buckets. But this is the thing I do. If I go negative because I spend more than what I have, then I cannot spend any other money from that bucket until I earn enough to go back to break even. So let's say that I have education. Let's write here. So let's say that I have education bucket with $1000 and I have a course that cost 2000. Now what I do is I use this 1000, I am negative 1000 and I will take the rest from my cash reserve. But I know that every month this. Let's say that I earn $1,000 a year and then I put it means I put 100 every month. So next month it will go to 900 and then next month 800, right? And then eventually I cannot spend any other money from the education budget until I become positive, okay? So only when I start to have a positive balance, I can start to spend again. This is how I modify the rule. Because I found this for the reason I told you a little strict. Number three, you cannot use the money in the investing bucket. And again, the reason is this is for your future. So of course you will use it later, but much later. How do you do that in practice? Well, the thing is that you need to keep track of what you spend. And now for these smartphones are really good because there are free apps, Wallet, they are called in App Store and also the Play Store. If you have Google phones that allow you to keep track easily. And I guarantee you at the beginning you may feel that is boring and is consuming a lot of time. But after a couple of weeks you will do it automatically and it will not really take much time. So when you track your expenses, then you have everything here. Another option is, for example if you use a credit card or you keep track of all your bills to create an Excel file. And every day, for example, in the evening you upload all your expenses. Now I use a E brief strategy between these two. What is the strategy? Basically I track my expenses with a phone application and then every month I have an Excel file where I upload my monthly expenses. Okay, and the other one that I don't recommend you is to keep your money divided for each bucket because it's not really practical. But if you don't have phone or Excel then you can do that. So what is the summary? What have you learned here? First rule is you need to save first and spend later. Okay, Number two is you need to follow the six bucket strategy. And this means that you cannot violate the rules, the rules of how much you allocate, which bucket, the rule that you cannot take from another bucket to cover something that you don't have in for example in the farm bucket or things like that. And again there are many application technology can help us to really do that. So you can track your expenses and you can really implement this strategy easily and effectively. So this is the content of this video. That's what I wanted to share. I hope you find it useful. I am really doing that and I have the feeling that is really important that everyone does something like that. So what I would like you to do is first give me a comment if you have any question about that something is not clear and again, if you have not done it, you can subscribe and hit the bell for the notification. But another thing that I want you to do if possible is if you find this useful, if you also feel like me that this kind of knowledge should be common knowledge, please help me share this message because I believe that many financial critical situation could be avoided if people follow some simple rules like that. And with that I really thank you for watching and see you next time.
