What Is the Money Management System?

Aug 29 / Jay Zigmont, PhD, MBA, CFP®

If you're new to budgeting and haven't yet found a way that works for you, you could give the Money Management System a try. This technique is based on time management and learning how to prioritize tasks. Except, when you use it for budgeting, you'll be using it to organize your spending and plan accordingly.

The system starts with your income, and ideally, you can take 10% off the top to save for safety and security – your emergency fund. This is the cash you've got set aside in case your car breaks down, you have a surprise medical bill, or some other unplanned expense. It's okay if you're not able to afford to put aside this much to start with, but figure it in when you sit down to list out your expenses. From here, let's look at four other factors that go into the Money Management System: musts, shoulds, coulds, and won'ts.

1. Musts

Musts are expenses that keep the roof over your head or that you're required by law to pay. It also includes your needs. So when figuring out what your musts are, include:

  • Housing expenses: If you own your home, this is your mortgage, property taxes, homeowners insurance, and possibly homeowners association dues, if your home is in an HOA. If you rent, this is your monthly rent cost and renters insurance. 
  • Utilities and other regular bills: Your water, electricity, heating, and internet access (this has become a need for many people, especially as more and more of us work from home).
  • Health expenses: Health insurance, any medications you take regularly, any kind of medical appointments you have regularly.
  • Transportation: If you own a car, this is your auto loan payment (if you have one), car insurance, gas, and maintenance costs. If you rely on public transportation, this is whatever you pay for train, bus, or cabs/rideshares.
  • Debt payments: Student loans, credit cards, any other debt you owe and make a monthly payment on.
  • Food: This is not dining out (definitely not a must), but it is grocery costs.

Add up all your musts, and see how the total compares to your income. If it's more than your income, you need to make some changes immediately, as you're going into debt every month if you're not bringing in enough to cover these expenses. Those changes could be adding another income stream (maybe gig work), or seeing if you can reduce your bills (perhaps by moving to a cheaper rental). If you have money left over, then you can consider your shoulds.

2. Shoulds

Your shoulds are expenses that you should pay, but that aren't absolute necessities, like food and a roof over your head. This could include:

  • Pet expenses: Depending on your perspective, these costs may be a must. But for many people, having a pet is optional.
  • Some types of insurance: Life insurance and disability insurance are not requirements, but many people should have them.
  • Sinking funds: This is money for upcoming expenses, such as if you're planning a large home repair like a new roof, or saving for a vacation.
  • Some medical expenses: Therapy may not be a must, but it is surely a should.
  • Financial planning: This is definitely a worthwhile expense. 
  • Saving/investing for your future: This is money you're saving for a big purchase, like a home, or putting into an investment or retirement account. 
  • Paying off debt: If you can pay more on your debt beyond just the minimum owed every month, you absolutely should. Debt is stealing from your future, as you pay for things you've purchased in the past.

If you have money left over, it's time to consider your coulds.

    3. Coulds

    Coulds are your discretionary spending. Generally, whatever you'd spend your pocket money on are coulds. This is often spending on your hobbies, or dining out, or entertainment expenses (like streaming services). Your coulds are an opportunity to create a balancing act with your budget. If you have a larger purchase that you want to make, you can save your could money up for that.

    4. Won'ts

    Everyone has a naughty list, consisting of costs we should try to avoid if we're not figuring them into a budget. For example, if you like to spend money on clothes, and you have a set amount in your budget that you can afford to spend for them, they're a could.

    There are ways to loosen the hold your won'ts have on you. For example, if you have a weakness for a certain store, and you have its app on your phone, you could delete that so you don't get notifications when there's a sale. If you spend too much on alcohol, you can cut back. Being able to see how much money you spend on these expenses may be a wake-up call.
    Jay Zigmont, PhD, MBA, CFP® is the Founder of Childfree Wealth, a life and financial planning firm dedicated to helping Childfree and Permanently Childless people. Dr. Jay is a CERTIFIED FINANCIAL PLANNER™, Childfree Wealth Specialist, and author of the book “Portraits of Childfree Wealth.” Dr. Jay is the co-host of Childfree Wealth Podcast. His Ph.D. is in Adult Learning from the University of Connecticut.

    He has been featured in Fortune, Forbes, MarketWatch, Wall Street Journal, New York Times, Business Insider, CNBC, and many other publications.