Financial PlanningNewsProfessorsPublic EmployeesRetirement PlanningVlogs

In our video “First Step Cash Management: Simplify and Automate Your Finances” you’ll learn about a cash flow plan called First Step, which aims to help individuals align their spending, saving, and investing with their values and goals.

Why First Step Cash Management

We start by emphasizing the importance of knowing where our money goes each month and how it relates to our values. First Step is a cash flow plan that combines the effectiveness of the traditional cash envelope system with the convenience of digital banking. The cash envelope system involves allocating specific amounts of cash to different spending categories (e.g., groceries, gas) and only spending what is available in each envelope.

How Does it Work?

First Step follows a similar concept but eliminates the need for physical cash. Instead, it uses separate bank accounts or “buckets” to allocate money for specific purposes. The three buckets are the Static Bucket, Control Bucket, and Dynamic Bucket. The Static Bucket is for fixed monthly commitments like rent, mortgage, and utilities. The Control Bucket is for variable weekly expenses such as groceries and entertainment. The Dynamic Bucket is for future expenses like emergency funds or saving for vacations.

This cash flow plan organizations your bank accounts to function as these buckets, with household income deposited directly into the Static Bucket. Automatic transfers can then distribute funds to the Control and Dynamic Buckets. The Control Bucket consists of a debit account for each family member, and it is funded weekly to cover variable expenses. The Dynamic Bucket includes multiple savings accounts for different savings goals, with automatic transfers made monthly.

This Cash Flow Plan is Not Just for Beginners

The First Step system is not just for beginners or those with limited income; whether you earn thousands of dollars a year or hundreds of thousands of dollars, this system can prove useful. Its effectiveness lies in its automation and the decision-making framework it provides. It simplifies financial management and provides a clear process for achieving financial goals.

To implement the First Step system, there are five key steps:

  1. Gathering at least three months of bank and credit card statements (we can also aggregate your accounts into our planning software);
  2. Categorizing your expenses;
  3. Entering the data into the First Step software;
  4. Reviewing the entries with your advisor, making refinements as needed; and,
  5. Setting up bank accounts to support the system you’ve established.

First Step offers a way to mindfully organize expenses, categorize them into different buckets, and create a system that supports both present and future financial needs. By automating and simplifying cash flow management, individuals can align their spending habits with their values and achieve their financial goals. If cash flow is an area you’re hoping to refine, reach out. I welcome the conversation.