On July 15, 2009, I introduced the Go Broke To Win Big budgeting system to help readers better manage their money. Today, having a strong budgeting system is more important than ever.
The Go Broke To Win Big budgeting system enabled me to leave the rat race in 2012. It also enabled my wife and I to remain disciplined financially, despite a raging bull market that ensued.
Now that economic uncertainty has returned, the budgeting system has provided us much-needed calm. Perhaps this budgeting system will help you boost your finances over the years as well.
What Is The Go Broke To Win Big Budgeting System?
To err is human. Frugal living is a necessary element to building long-term wealth. At the very least, one has to spend less than one earns. Give yourself a chance to make profitable investments.
Trust me. Nothing is more wonderful than having an army of passive income streams fighting to defend your freedom!
The Go Broke to Win Big budgeting system is simple. If you see nothing in your bank account, you’re going to feel broke. When you feel broke, you’re going to try your hardest to build back up your savings. With little-to-nothing in your bank account, you’ll also be less tempted to spend frivolously.
When I say “go broke,” I don’t literally mean bankrupting yourself. Instead, I suggest creating three separate banking accounts. Having three separate banking accounts is not to be confused with having three accounts with one bank.
If you are like me, in the past, you’ve blown yourself up through dumb investments and unscrupulous spending. To prevent financial mishap, the key is to protect yourself from yourself.
Feel Poor To Get Rich
You know what one of the easiest ways to go broke is? Feeling rich. If you feel rich, you may start loosing your discipline to save.
For example, before the pandemic hit, my wife and I hadn’t gone through a budget analysis in years because we felt rich enough. Once things started getting scary in March, we finally went through a budget and income audit. We did so because we started to feel poor.
During our budget audit, we questioned every expense. We discovered we were overpaying for many things.
One no-brainer expense we cut was my wife’s life insurance cost. She was able to double her death benefit amount and save on her monthly premium. Score! We then cut our cable cost and mobile phone bill as well.
It’s important to always create that renewed sense of urgency to forge ahead and stay disciplined in your finances. Not only will feeling like you don’t have enough money naturally make you want to save and earn more money, you’ll also increase your side hustle discipline.
After stocks and real estate prices surged higher after I left work in 2012, it would have been extremely easy to slack off on Financial Samurai. But in order to stay disciplined, I reminded myself that everything could go back to hell in a hurry.
You may laugh at the concept of protecting yourself from yourself. However, everyone of us has the means of blowing ourselves up financially every single day.
We are bombarded with temptations online to spend all our money. We suffer from investing FOMO when someone is making a fortune on a funny money tech stock.
Collectively, we successfully took down a large part of the economy in 2000 when the NASDAQ bubble pop. Between 2008-2009, hundreds of thousands of people took out mortgages they couldn’t really afford.
Today, the excesses seem to be relatively better controlled due to much tighter lending standards. However, you can count on at least a segment of the population to take more risk than they should.
Basics Of The Go Broke To Win Big Budgeting System
In order to successfully implement my budgeting system, you should ideally create three separate bank accounts. Each bank has its own main function, although they can all do similar things.
1) The Go Broke Bank
The first bank account is for working capital needs – namely where your paycheck goes, and where you pay all your bills. This bank is your operationally efficient bank. It should have the best tools and the most branches for accessibility. Given fewer people want to go into a branch anymore, your Go Broke Bank should have a great mobile app with a high enough mobile deposit limit.
One example of a Go Broke Bank is Chase. Chase has many branches domestically and internationally. However, it doesn’t offer a high savings rate. Therefore, you wouldn’t want to keep your savings at this bank.
Your Go Broke bank is where you do the most banking transactions. You are looking at your balances the most frequently with your Go Broke Bank. As a result, you are also constantly reminded of how little you have.
Your Go Broke Bank should have a selection of rewards credit cards where you can earn points and charge all your transactions. For example, the Chase Freedom Unlimited card is a good selection if your Go Broke Bank is Chase. You get 1.5% cash back on all purchases, earn a $150 bonus if you spend just $500 within three months, and there’s no annual fee.
Before you pay your expenses, your goal is to pay yourself first by transferring as much savings automatically to bank #2, The Freedom Bank.
2) The Freedom Bank
The Freedom Bank is predominantly for long-term savings via money markets and CDs. This bank may not have as big of a footprint, but it doesn’t matter because you don’t need to access money from this bank. That’s what bank #1, the Go Broke Bank, is for.
Due to lower overhead, The Freedom Bank provides better long-term savings rates. Online banks such as CIT Bank almost always provide a higher savings rate than a Go Broke bank with a large brick and mortar presence.
With your Freedom Bank, do not tempt yourself by creating a checking account. You want money to easily go in, but not easily go out. Notice how a bank teller never requires an ID when depositing a check, but does require an ID when withdrawing? Interesting! The more friction to withdraw your money, the better.
This friction to withdraw your money is one of the reasons why investing in real estate, private equity, and venture capital can be so successful. Because you commit to investing your capital for years, if not decades, your chances are higher that you will make money.
For disciplined investors, stocks have also shown to provide great returns over the long run. But today, it’s so easy to sell for free that some stock investors tend to panic sell at inopportune times.
Your Freedom Bank is also where you can hold most of your stock and bond investments. Once again, your goal is to try and only contribute to your public investment portfolio and not withdraw. The less you touch your investments the better.
Ideally, you want to automatically contribute to your accounts and forget about them. If you keep most of your public investments in your Go Broke Bank, your temptation to fiddle with your investments will increase.
3) The Lockdown Bank
The third and final bank is the Lockdown Bank. The Lockdown Bank didn’t get its name due to the months of sheltering-in-place in 2020. The Lockdown Bank is for your debt, personal loans, and car loans.
As the entrepreneur J. Paul Getty once said, “If you owe the bank $100 that’s your problem. If you owe the bank $100 million, that’s the bank’s problem.“
During crisis times, it’s good to have all your debt in one place. Your bank doesn’t want you to cause a default cascade. As a result, your bank may be more willing to create a debt workout plan with you in case you’re feeling the crunch.
By loading the majority of your debt with one bank, you also compartmentalize your debt. By doing so, you may relieve any mental stress related to this debt.
It’s easier to tackle your debt at one bank and employ various debt pay down methods. One popular strategy is the Debt Snowball, where you pay down your smallest debt first, regardless of its interest rate. I personally always tackle the highest interest rate debt first to save the most amount of money.
Further, you may get better rates given you are such a good debtor. It’s like buying debt in bulk from Costco. The more debt you buy, the greater the discount.
Embrace A Strong Budgeting System
All banks strive to cross-sell as many products as they can. They try and capture you with rewards points and so forth.
Your goal is to protect yourself from spending unscrupulously with the commingling of monies through one bank. This way, you will be forced to actively manage your budget. We humans are weak, and we need to constantly remind ourselves to focus on our finances.
After using the Go Broke To Win budgeting system since 2009, I know exactly what’s going into and out of my checking account within 10 dollars. When the tank is running low with only $200 left for the month, I start changing my behavior. I’ll either cut down on the poker playing or figure out a way to generate more cash flow.
Lavish spending goes out the window since employing my budgeting system as well. During times of uncertainty, I pretend that all I have left in the world is in my Go Broke Bank.
The dearth of money keeps me motivated to keep on writing, keep on budgeting, and keep on focusing on my finances. With financial discipline, The Freedom Bank should continue to grow while the debt balances at The Lockdown Bank should continue to decline.
For The Very Wealthy And Disciplined
If you are very wealthy, you will definitely want to adopt some form of my Go Broke To Win Big budgeting system. After all, the FDIC only insures up to $250,000 per person and $500,000 per joint account in case of financial catastrophe. By spreading your money around to many banks, you better protect your capital.
However, if you feel you’ve developed enough discipline, then going with two banks works just as well. The more accounts you have at one bank, the better you will be treated. Better treatment means lower borrowing rates, lower transaction costs, and higher quality service.
Readers, what type of budgeting system do you use to grow your wealth and keep track of your finances? How many banking relationships do you have?