They say a picture is worth a thousand words, so instead of writing a thousand words about The Simple Man Savings Plan I’ll just draw a picture and then say a few words after.
Step 1 – Point All Income to a Primary Checking Account
Income from my primary job (my “W-2” income), plus a portion of any side hustle earnings, goes directly into our primary checking account.
Some of our side hustle earnings for self employment taxes. I divert 30% to a dedicated savings account from which I make quarterly estimated payments to the IRS.
Step 2 – Create “Sinking Fund” Accounts at Capital One 360
We use Capital One 360, and have for over 10 years – back when it used to be ING Orange, because it is so easy to create multiple savings accounts and assign them a nickname. We refer to them as our sinking funds.
You can read more about our strategy here.
Step 3 – Set Up Automatic Transfers from Checking to Each Sinking Fund
In accordance with the Simple Man Budget (15-15-70) we save 15% of our income towards retirement and 3% of our income in each of our five sinking funds:
- Emergency Fund
- Home Repair
- Car Repair
Those last two are sort of a first line of defense in protecting the larger Emergency Fund.
I drive an old truck; repairs will happen.
Home air conditioners die. Hot water heater tanks burst.
These things are inevitable, so best to plan for them by diverting a little money each pay day.
Step 4 – Live On Everything Left in Checking – Guilt Free
With retirement savings and short-term savings taken care of feel free to live on what’s left, minus any other financial goals you may have.
Go out to a nice dinner with your family once a week.
Spring for a manicure and pedicure.
Surprise your kids a completely impractical toy or game because it is their “hearts desire.”
I’m not advocating you become a spendthrift, but within that 70% of your remaining income I am encouraging you to enjoy life. Stop and smell the roses.
Adjustments to the Simple Man Savings Plan
We do sometimes have more sinking funds depending on our goals. In that case we divide 15% by number of plans to figure out how much to divert.
For instance, once we are debt free we are adding a “Down Payment Fund” to divert some money for our first step into real estate investing.
If your income changes significantly month to month you may also need to update the amounts automatically withdrawn to keep your allocation percentages correct.
You may also have other goals such as college savings or a new sofa. Create as many sinking funds as needed, but like I always say, keep it simple!