This is the second part of our six-part intensive series on the Freedom Generator. If you missed the first article, you can read it here.
Let’s start with the end in mind.
Your Cash Bucket is the alpha and omega of your journey to Freedom. Establishing this bucket is the very first step you take in building your Freedom Generator. And later, the Cash Bucket is the money spigot that you twist on when your Freedom Day finally arrives.
Remember: Freedom comes from Cash Flow!
As we discuss the step-by-step process for how to build a Freedom Generator, don’t forget that the path to Freedom is not a sketchy get-rich-quick strategy. Even better, it’s a get-free-for-certain strategy. If you follow the process, put in the time and maintain your focus, you will achieve Financial Freedom.
Start construction of your Freedom Generator with the Cash Bucket.
One of the foundational principles of becoming Financially Fit is to Pay Yourself First. That’s building up your Emergency Buffer or safety net that will catch you in the event of financial trouble. And doing that means committing to the process of making regular, automated contributions to your Pay Yourself First Account. That account is the beginning of your Cash Bucket.
To get started, first calculate the amount that you’ll contribute each month to your PYF Account. (Use the worksheet found in Module One of Financially Fit Bootcamp.) Then, little by little, add to the balance of your Cash Bucket until you have enough saved to cover at least three months of living expenses.
Keep in mind that, at this stage, the money in your Cash Bucket is off limits! It’s not yours to spend! At least not right now. In fact, we sometimes refer to the PYF Account as your Future Self Account. Because that money belongs exclusively to the you of the future.
Build it up.
At the same time you’re building up your monetary resources, pay down your debt aggressively. Our rule of thumb? Use two-thirds of your monthly Pay Yourself First contribution for extra debt repayment and one-third of that contribution to bolster the amount in your Cash Bucket.
As you inch closer to your Freedom Date, amp up the contributions to your Cash Bucket until it contains two full years of living expenses. By focusing on minimizing or eliminating your debts now, you’ll free your future self from the burden of debt repayment. And the living expenses your Cash Bucket will need to cover won’t include the weight of credit-related bills.
For now though, simply work on building up that Cash Bucket value to at least three months of your expenses. At this stage in the game, your Cash Bucket is a receptacle for your Emergency Buffer. But once it’s time to switch on your Freedom Generator, the Cash Bucket transforms!
Open up the tap.
Let’s take a peek into your incredible future. It’s Freedom Day! Time to flip the switch on your Freedom Generator and watch the money flow into your Perfect Account Structure. And the Cash Bucket plays a critical role in that process.
While you were building your Freedom Generator, your Cash Bucket safely held the contents of your PYF Account. Now that you’re free, the Cash Bucket acts as the delivery mechanism for your monthly allowance–the pipeline for your Freedom Income.
It funnels to you a regular income that’s provided by the cash returns of your quality investments. With your Freedom Generator turned on, you receive a steady stream of cash without having to work for it.
Money produced by your Income Generator flows through your Cash Bucket to the system of accounts you’ve carefully set up. These accounts handle all of the recurring and one-off expenses that support your lifestyle: your Everyday Account, Surprise Account, Bills and Taxes Account, Goals Accounts and more. With your expenses entirely taken care of by your fully functional Freedom Generator, the you of the future is free.
So what’s next?
Are you excited about your financial future? Are you ready for Freedom? Now’s the perfect time to start down the road that will get you there.
Next time, we’ll turn our attention to the Income Generator Bucket–the workhorse of the Freedom Generator that gets your money working for you! For now, commit to the first step of your journey, and begin building up your very own Cash Bucket.
image credit: Bigstock/jojojojo
Dr. Tony is the co-founder of MindShift.money and the best-selling author of three books on personal and business finances. Having achieved Financial Freedom at 27, Dr. Tony believes that through Financially Fit Bootcamp and Cash Flow Cure everyone can get there. He has made it his life’s mission to help others live a life where their money works for them—not the other way around.