Well howdy, friends!
Here we are, back for week 7 of the Photographer Series where we are discussing simple finance for photographers. Currently, in Washington state, we are in what’s called “off-season”. Our region has distinct weather seasons, often yielding very “chill” wintertime with little to no shooting but a whole lot of backend computer work. Most photographers (including myself!) can have a freakout moment when it comes to finances in the slow season. In the summer we feel like we are rolling in the dough, but as soon as January hits, it can feel desert dry in our bank accounts…that is, unless you’ve been doing the simple financial planning I’m about to share.
The Bucket Method was born out of the amazing financial advice my best friend gave me several years ago. I was always guesstimating and praying that I had the money I needed when I needed it. This was true of not only my personal finances but also my business ones. Sometimes I would have to dip into the money I set aside for my own paycheck to cover the costs of a wedding album because I hadn’t saved properly, YIKES!
After finally sitting down to crunch some hard (yet easy) numbers, I figured out how many buckets I needed for both my personal and business accounts, and got crackin’. Now that I’ve been doing this for 3-4 full years, my husband and I have retirement plans, rainy day funds, stock investments (all on automation) AND my business has real savings, cash flow for my own paycheck, and all my CODB covered. Whew, a huge sigh of relief.
Let’s dive in.
What is the Bucket Method?
The Bucket Method is a quick and easy way to make sure all your hard-earned dollars are distributed properly within your life or business. The “buckets” are separate checking or savings accounts you have set up in your online banking portal. Often times for a business account, you’ll need to go in person to set these accounts up. With your personal banking, you can usually open them online.
Whenever a paid invoice or paycheck hits your bank account, you can set up banking “rules” that can distribute the money into separate accounts automatically, or you can do it manually with some easy calculations in under 5 minutes. When managing your business and personal finances, guesswork isn’t helpful. Knowing your exact numbers and where you stand financially allows you to make informed decisions and feel good about them.
Steps to Using the Bucket Method
01: Crunch your numbers
Log into your online banking and print out the last three months’ worth of statements. Start tallying where your money is going. For example utilities, groceries, Amazon Prime (we are all guilty of this one), car payments, rent, etc. Please note, THIS IS A NO JUDGEMENT ZONE. You are just hunting for the facts, not making opinions about them. You can find excel templates online for free so you can easily write it all out…even decide some subscriptions need canceling 😉
02: Create a monthly budget based on your necessities
This means what is the bare minimum to keep the lights on in your business and the lights on in your home. The total amount of expenses you find for your personal finances will be part of the profits you need to hit in your business to make this work. If these numbers aren’t adding up, there might be a few other conversations you need to have.
Living within your financial means is serious business. A Gallup poll found that only 33% of Americans maintain a household budget or have a long-term investment strategy. Even scarier, 19% have $0 saved to cover emergency expenses and only 31% have somewhere between $1-$500 saved. THAT IS NUTS. Now, before you feel like slapping me for judging, what I actually mean is, we all have the power to take control of our money. Whether we have a lot or a little, we can take steps to feel financially secure in the circumstances we currently reside in. Baby bites still help you eat the whole elephant.
When you’re creating these budgets, I want you to do both a personal and business version of them. The monthly total in your personal combined with the total in your business expenses is the bare minimum that you need to be bringing in each month.
I specifically want to take a second to talk about “off-season” savings. If you know that in your business it costs $647 a month between subscriptions, insurance, websites, VAs, etc, and that your “off-season” is perhaps 4 months long, that means that at the end of the summer season, you need to have at least $647×4 = $2588 set aside for running your business. If you know that your personal expenses are $3568 dollars and your “off-season” is again, 4 months long, you need to have at least $3568×4=$14,272 saved. SO, in total, at the bare-frickin-minimum, you need $16,860 dollars set aside so you don’t have a freakout in winter.
These numbers laid out can be scary, but not as scary as walking into the winter season with no idea how you’re going to pay your bills.
03: Categorize Major Expenses into Buckets
In the guide, you’ll see a guide like the ones below. This shows you the actual buckets I have in both my personal and business banking accounts. Also, I highly recommend using a credit union, they do not charge for extra savings accounts, or do they have minimums for those accounts (can I get an AMEN!).
The “Business Savings” that you see listed is where I put all my off-season money. The “Sarah’s Paycheck” is where I put my portion to cover my personal expenses. I give myself a regular paycheck every month so that when my husband’s paycheck drops, so do mine…makes it easier to do finances all in one day.
04: Log into Your Bank and Open Your New Savings//Checking Accounts
Most banks allow you to do this online. Personally, I bank with BECU and they require me to come in person just for my business banking. It’s not a big deal, make an appointment ahead of time online and you’ll be in and out super fast.
05: Decide if you want to manually or automatically want to separate your money into buckets.
Personally, I have opted to do this manually. Since invoices hit my inbox at irregular times (being a seasonal worker), I need to have a little more wiggle room when it comes to moving my money around. However, banks also allow you to set up automatic rules that move money for you based on the date, frequency, and dollar amount.
06: Revisit Your Bank & Budgets Often
Ah! Don’t go screaming into the dark yet, I promise this isn’t as scary as it sounds. Looking at your finances weekly (if not daily) allows you to know exactly where your money is and how it’s working for you. You might be able to break a few extra spending habits or notice how much that daily latte does add up. Either way, it’s important to keep an eye on your finances so you KNOW you’re headed in the direction you want to be.
In the Bucket Method PDF (which you can snag at the bottom of this post) I give you an example of what it looks like when a wedding payment hits my business bank account. I give you the exact percentages and dollars so you have a good example of how to apply this to your situation.
If you’re looking for a great mindset book around the top of makin’ that dolla dolla bill, I highly recommend “You Are a Badass at Making Money” by Jen Sincero. I have a book review of it here on the blog, but you can always take my word for it and go snag it from Amazon.