135 | Buckets of Money

I find that when lawyers are running into issues like rising credit card balances or overdrafting their accounts, it’s typically because they’re not balancing how they’re using their money.

There are always three buckets that are competing for your money—your needs, wants, and goals.

Often the needs and wants buckets get the bulk of the money, leaving little to nothing for the goals bucket.

In this episode, let’s talk about your buckets and how to think about your money to make sure that you’re funding all three.

• the reason why lawyers run into issues like running out of money, overdrafting, and rising credit card balances
• the three buckets you want to be funding with your money
• your needs bucket and issues that can come up with it
• suggestions of how much to spend on housing and car payments
• the importance of spending on wants
• common wants that throw people’s finances off
• how to think about your spending on your needs and wants to fund your goals

Episode 130: Unintentional Priorities

If you’re ready to learn the mindset and strategies to master your money, let’s schedule a call.

You’re listening to Wealthyesque. We are a community of lawyers who believe that true wealth is having control of our time. I’m Rho Thomas, and as a busy wife, mom and former Biglaw associate, I know all too well the tension between the culture of the legal profession and pretty much everything else you want to do in life. That’s why each week, I’m bringing you the information and tools you need to improve your money mindset and manage your money to create true wealth. Because ultimately, it’s not about the money. It’s about the freedom and flexibility the money affords.

Hey friend. Welcome back to the show. I hope you’re doing well and having an amazing day so far. So we have talked before about feeling ashamed of being a broke lawyer and how we often think we are the only ones so you think you’re the only person who doesn’t have a handle on their finances or who open up their account sometimes or who has credit card debt or who runs out of money before the end of the month. I want to talk today about the reason why this hence the reason why these kinds of things happen, and it always comes down to not having balance in the way you use your money. So let me explain. I teach my clients to use their money to fund three areas, right three buckets, needs, wants and goals. We don’t have a handle on your finances and your run up your credit card or your overdraft in your account. It’s typically because your book is out of whack and usually a huge chunk is going to either meet or once and the rest is going to the other right. So if you have a huge number, we need the rest of the ones. If you have a huge number one, two ones, then the rest is going to need and in both instances, your goal is getting little to nothing. So let’s talk about the needs looking first. And when I’m thinking of need, I’m thinking of things you literally need my food, housing, transportation, but I’m also thinking of other bills you have like minimum payments on debt and things like that. One of the things I see happen a lot of people have these things taking up way too much money and it’s not usually one thing in particular, it’s all of them in aggregate. So the big players tend to be your mortgage or your rent your car payment and then payments on credit cards and loans and things like that. You have a mortgage or rent and maybe it’s too high for your income, your car payment could be too high. The minimum payments you owe on credit cards and loans are eating up much of your money and maybe all the above. I’m going to give you some suggestions for how much to spend. But keep in mind that all of these are just my thoughts on the percentages. They are not the end all be all of what you should or shouldn’t do. But I found that these numbers tend to work out well for people. So if I had to give you a number for your car payment, I’d say keep it to less than 10% of your take home pay. Again, this is just my thought this is an arbitrary percentage. But if you have more than 10% of your pay tied up in car payments, then it’s going to be really hard to make progress in other areas. For housing, you might keep it around 25% or less of your take home pay. Okay not a hard and fast rule or anything but you’re on the wrong if yours is like 20% or 30% or something like that. But when you start getting too much higher than that it starts to get tricky because it’s so much of your money tied up in this one bill. Sometimes people will just get into a place that too expensive. For their income. But another scenario I’ve seen is a situation people had a house that was fine for their family before but then they go through a divorce or a job loss or some other situation where their household income is cut. And now this house no longer makes sense for the income that they have. And people often don’t want to let go of their houses when these kinds of changes come up but then it leads to them digging themselves into a hole because they don’t make other changes to balance out for your minimum payments. premium payments on other days a little tougher to give you a specific percentage but you want to keep them as low as you can watch out to for the Buy Now pay later services like Klarna and afterpay Because those are just many loans and the payment add up quickly and they start eating into the money you have available for the things you want to do in the goals you have. In total. You don’t want your need bucket including bills like your rent your mortgage or car payment any other payment you have to pay out groceries gas, right all of that you don’t want that to be more than about half of your take home pay because that gives you plenty of room to spend on things you just want and still also make progress on your financial goals. Sometimes it’s not that you’re being irresponsible. When people start wanting to get a handle on their finances. They only go straight to put it back and I can’t go out to eat and I can’t go shopping and all of that stuff. But let’s look at your budget first because if that’s crazy out of line you’re spending way more than half your income on just needs. It doesn’t matter how much you cut back on the restaurant spending on whatever else because it’s gonna be really hard for you to get ahead. Alright, so let’s talk about the ones that maybe your actual bills are reasonable for your income. They’re not taking up more than half your income or anything like that. But you don’t exercise any self control when it comes to your discretionary spending. Or sometimes I’ve seen those where the bills are high and discretionary spending is high. So when we’re talking about your want, I’m thinking about things you don’t necessarily need but just one and there’s technically a little overlap with the bucket in that there are things you need, but you don’t necessarily need a particular level right at the level that you have. So you need a place to live. You don’t need a penthouse. You need transportation you don’t need electric car, and we’re not gonna get into that essentially this conversation but I wanted to at least mention it. And this conversation, let’s think about what’s in terms of things like going out to eat or shopping or going on trips, Amazon’s anyone how to use that stuff, right? All those things that you don’t need, you just want. Another thing that comes up a lot here is activities and stuff for your kids. A lot of lawyers wanna make sure their kids have all the experiences and all the things they didn’t have. But if you’re going overboard spending on those things, and it’s going to be hard for you to then make progress that you want to make financially because you’ve got so much money going out for those things. You want to make sure that the amount you’re spending works for the income you have. And obviously that’s not to say don’t do things for your kids or don’t spend on things that you want, I think is important to make room in your budget for the things you want. I think it’s important to be able to do those things for your kids as part of why you’re working so hard. I actually believe having money available to spend on things you want helps you stay on track with the financial goals you have, but it’s all about balance. You want to make sure that you’re funding all three buckets and that you’re not overspending with neither one and then having nothing for your goals in both of these scenarios, both with overseeing your needs and overspending on once something has to give in order to make progress on your goals. You have to decide if it’s more important to you to continue to stay in this house or in this car or to spend at this level on these things right on this lifestyle over and with your finances. Over having money available to fund your goals because that’s the effective decision you’re making when you run out of money or you go further into debt or you overdraft your account and don’t have money for your goals. You effectively are deciding that the house the car, the activities for the kid, the lifestyle is more important than saving or paying off debt or that it’s worth putting yourself further into debt to keep those things because I’ve also seen that situation where people are getting themselves further into debt and month after month trying to keep up a certain lifestyle and if it is important to you for you to have those things well the financial goals that is fine you get to make the decision for your life. And so knowing that that’s your decision, knowing that that was more important to you, you can go forward knowing that that’s your choice, right you have continue to beat yourself up for not fitting some mold of what someone else wants or what other people think you should be doing. We don’t tend to intentionally make those decisions though. I think I talked about that in the unintentional priorities episode like we don’t make the intentional decision that yes, it’s so important to me that my kid gets to do this activity or that I live in this house or that I spend this much at restaurants or whatever it is that I’m willing to not say I’m willing to go into debt or not achieve my financial goals to pay for it. We don’t think about it in that way. But you can make that decision if you want to just make sure that you want to and if that’s not the decision you want to make you have to decide what you’re gonna change. What’s happening most often is people are just spending and not paying attention to how much they have or how much they have left with other things they want to use their money for. And then it’s and you know, I’ll show up to my account my credit balance is higher than my paycheck. I don’t have money saved off debt, right. If we look at your money like a pie, you get to decide how big a slice you’re gonna give to the things you need, think you want and the goals you have. And you don’t want it to keep being 100% or more of the pie going to need more than nothing go into your goals because if you don’t make a change, you’re not going to get ahead and make the focus on the goal that you have. That’s just math. So look at how much is going to each of your buckets currently. Then look at what you can shift and the needs and once bucket to have more go into the goals bucket. And if you’re like I just can’t spend any less on these things, then you have to be honest with yourself about whether that’s actually true, because candidly nine times out of 10 for people in the profession it’s not and then you also have to be honest with yourself about whether you actually want to achieve the goals you say that you want. Right sometimes we just say it because it sounds nice in theory, but we’re not actually willing to do what it takes to achieve it. Because if you truly do want to achieve those goals, you’re going to have to carve some of that spending to free up money for the goals. It might be a temporary thing, right? Maybe it’s a short term sacrifice for long term gain kind of thing, but something has to change. You can’t keep doing the same thing and expecting different results. And if I’ve been speaking to you the whole episode and you already know something needs to change, I can 1% help you. This is the work that I do. I love strategize with my clients and help them put themselves in better financial decisions. You don’t have to keep running out of money at the end the month not to keep stressing about the credit card payment and feeling overwhelmed vital. Just don’t work with me and let’s get you on track head to thomas.com/waitlist so you be the first to know when I’m taking on new clients. All right, that is it for this week’s episode connect with me over on social media you can find me on LinkedIn rho Thomas and Instagram at I am rho Thomas subscribe to the show and leave a review both of which are more people to find it and please take a second and think of a friend or two who could use this information, information and share that with them. As a close friend. I pray that you take the information you learned here, apply it in your life and open up to the realization that wealth is available to you. As you do that consistently. Week after week. You’ll continue to take steps to regain control over time, build wealth and live the life of freedom and choice you deserve. Talk to you later.