Money, Divided.

I attended a training course [1] at work last week – nothing too exciting. The class was being held in an older building which has seen better days. As I walked to the classroom I encountered a bucket placed in the middle of a corridor and right above it, a hole in the roof. Which made me think that Personal Finance is really about how best to manage a leaky bucket that’s collecting water from a leaky roof.

If you want to collect and keep as much water as possible; there are two things you can do:

  1. Make a bigger hole in the roof (earn more money)
  2. Reduce the size of the hole in the bucket (spend less money)

The magical thing about Personal Finance is that the size of the bucket [2] will grow automagically to prevent flooding; so you never have to worry about that. It’s simply money in vs money out.

So what to do with money that comes in? This is likely different for everyone of course, but here’s how I look at mine.


This represents retirement savings accounts such as 401K and IRA’s. I’m currently only paying into my 401K pre-tax and I’m not making any after-tax contributions.


I automatically deduct some money each month into my savings accounts and investments.

Living Expenses

I have a fixed living expense budget that is managed in high-interest checking account [3] held at Ally. This category includes debt payments such as mortgage and credit card payments; pretty much any money I spend (required or otherwise) in day to day living.


This is where any remaining unspent money ends up. I invest in low-expense Vanguard funds and individual stocks and I treat dividend payments as ‘Income’.

How do you categorize your money?

“My other piece of advice, Copperfield,” said Mr. Micawber, “you know. Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”

[1] The class was Statistics. 78% of the attendees said that they enjoyed it and 22% had no opinion.

[2] Of course, size doesn’t matter but you know that, right?

[3] When I say high interest, I mean 0.65%.

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