Intro to the Four Rules of Cash Flow

fbOut of all the financial apps I have used, You Need a Budget 4 really did it for me.  At the end of this post I’ll link to a free copy of the book!

I’m not too into software to get your finances in line; you are either on board to change behavior or you are not.  No software will change your life for you–you have to commit to it.

The Four Rules are pretty straightforward and provide a great financial launching point for most of us.

These rules are:

1. Give every dollar a job.
2. Save for a rainy day.
3. Roll with the punches.
4. Live on last month’s paycheck.

Not that you need me to explain each of these rules, but here goes:

Rule 1: Give Every Dollar a Job simply means that you’re going to decide in advance where your money is going each month, even money you want to spend without rules (aka BLOW money). You don’t spend a dime without planning for it first, and it all goes in your monthly budget.

Rule 2: Save for a Rainy Day obviously means that you are going to create an emergency fund ($1000 immediately if you have not already, then 3-6 months of living expenses).  This emergency fund gives you the freedom to ditch your credit cards (you will borrow from yourself from now on!).

Rule 3: Roll with the Punches means that sometimes you’re going to screw up and that your budget needs to allow for that. If we are committed, we will learn from our mistakes, not be so hard on ourselves, and try better next month.

Rule 4: Live on Last Month’s Paycheck means that you’re in a place where you don’t need to touch your paycheck when it arrives, giving you  time to plan for how to use that money.  That is so much easier said than done!  Man does it feel good when it happens, though!

If you follow these basic ideas carefully, you will be better of a few months from now after reading this.

However, this is just a starting point (albeit a good one).  The Four Rules give you a good idea of how to start spending less and put yourself in a situation where a leaky sink won’t kill you, but there is more to getting out of debt and thriving than this.

Let’s say, you have followed the Rules and you have “arrived”.  What now?

Here are my suggestions:

Get out of debt…

…as fast as possible.

You have heard me say it a million times, but the debt snowball method is the way to go.  Follow it and become debt free as soon as you can.

Much of “giving every dollar a name” now may include “telling” the dollars to pay off debt.  But think of how you will feel when you are debt free!

Get your goals down on paper and PLAN.

You’re going to retire someday. If you have kids, they’re probably going to go to college or a trade school. You need a lot of money to make this happen.

Find a comfortable amount of money to put into a retirement plan.  I will talk about IRAs, 403(b)s, etc., in later posts (although there is a ton of info on the internet about this), but you need to set aside some money for this after paying off debt.

As far as college, it’s easy to open up a 529 plan and have money taken out of your checking account on a regular basis.  If you have kids, you must do this ASAP.

Write down your other goals, and figure out what it will take financially to achieve them.  It will also help you to create your budgets now on a month-to-month basis.

If you have no debt and you have a retirement plan underway, congrats!  You have the amazing fortune to ask yourself deeper questions, like:

  • What are you truly passionate about?
  • Are you happy with your career and your current job?
  • Are you happy with where you live?
  • Are you spending your (very finite) “life energy” on the things and projects that you value?

Debt freedom and some financial security open up your life to start thinking about these questions. It’s fun to write all your goals and dreams down now, but watch out when you finally have the chance to act on them!   It’s a beautiful and scary thing at the same time.

Hopefully, the Four Rules of Cash Flow, some patience, and determination will help you get started in this New Year.  Good luck!

The free PDF book can be found here:

You Need a Budget (The Book)


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