Flow-Based Budgeting: A Flexible Approach to Money Management

This video presents a comprehensive overview of “flow-based budgeting,” an alternative to traditional category-based budgeting systems that offers more flexibility while maintaining financial control.

Introduction [00:00]

• The presenter introduces flow-based budgeting as a flexible alternative to traditional category-based budgeting
• This system focuses on organizing money into three distinct buckets based on how money flows
• This approach can work with or without budgeting tools like Monarch Money

The Three Budget Buckets [01:42]

• Fixed bucket: Recurring monthly expenses that remain consistent
  • Examples: Mortgage/rent, utilities, subscriptions, loans, daycare
  • These can typically be put on autopay
• Flexible bucket: Variable expenses requiring active payment decisions
  • Examples: Groceries, gas, dining out, entertainment, shopping
  • These are typically paid by swiping credit/debit cards
• Non-monthly bucket: Expected but irregular expenses
  • Examples: Vacations, property taxes, car maintenance, holidays
  • These expenses often cause financial stress when not planned for

Implementing the System [05:10]

1. Income flows first to retirement contributions (if applicable)
2. Remaining income is deposited into primary checking account
3. Fixed expenses are paid from primary checking (can be automated)
4. Transfer money to savings for non-monthly expenses (automated)
5. Transfer money to secondary checking for flexible spending
6. Optional: Contribute to Roth IRA or investments if extra funds available

Alternative Implementation Methods [08:21]

• Credit card approach:
  • Use credit card for flexible expenses (paid in full monthly)
  • Set weekly spending limit (example: $750/week from $3,000 monthly budget)
• Checking account approach:
  • Transfer flexible spending money weekly or bi-weekly
  • Weekly approach provides better guardrails than monthly
  • Use remaining funds for debt payment, savings, or roll over to next period

Planning for Non-Monthly Expenses [11:29]

• Use spreadsheet to list all non-monthly expenses
• Calculate monthly savings needed for each expense
• Example: $200 car maintenance in July requires saving $17/month
• Example: $7,000 property taxes in January requires saving $584/month
• This prevents these expenses from becoming financial emergencies

Conclusion [14:20]

• The system helps prevent non-monthly expenses from becoming budget “whammies”
• Implementation details vary based on personal situation
• Contact information provided for personalized assistance

This approach focuses on managing money at a higher level rather than tracking every dollar in detailed categories, making budgeting more sustainable while still maintaining financial control.