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Perhaps you’re familiar with various stories, both in real life and in fiction, where somebody is kidnapped and the kidnappers demand that they be paid. In return for letting the person go. Ideally alive and unharmed. There are multiple examples I could list here, including the movie Ransom (1996), the John Paul Getty III kidnapping in 1973, and the kidnapping of King Richard I in 1192.
Even the real life examples here have been made into movies. It goes to show that ransoms and rescues can be very dramatic. Your life is no different.
What if I told you that you’ve been kidnapped and sold into slavery and that you need to pay a ransom for your freedom?
Well, you have and you do. Odds are that you’re living far below your potential and that you’re caught in some kind of slavery such as debt slavery or wage slavery. There are other kinds of slavery as well, including some that are too dark to mention here in this current discussion.
As you gain your own freedom from slavery, you’re then in a much better position to purchase other people’s freedom, too.
The point is that you are built for freedom and to have a greater amount of control over your own life. You don’t have to wait for someone to rescue you. You can go ahead and change your situation for the better. You can go ahead and get liberating yourself.
Unlike the examples above, it’s up to you to raise your own ransom and to buy your own freedom. It’s time to roll up our sleeves and get to work. There’s going to be some calculations involved, and it might help to use a spreadsheet. Don’t worry though. It’s less painful than you think. Besides, isn’t your freedom worth the effort?
Of course it is.
What’s your ransom? Find out now. Buy your freedom.
Raising Your Ransom: The 7 Buckets Money System
The money organization system that I’m going to describe to you — and recommend that you follow — is something that I learned from “Life’s Golden Buckets: The Budgeting Habits of the Super Rich” by Kieron Sweeney. In the book, Sweeney took the opportunity to go into more detail than in his TED Talk about this topic. Sweeney also covers Life’s Golden Buckets in his book “Buy Back Your Life: How to Get Rich Without Losing Your Soul.”
Sweeney calls the system Life’s Golden Buckets. I call it the 7 Buckets Money System. It doesn’t matter what you call it, as long as you use it. I’ve noticed that my life has been definitely improved whenever I’ve followed the system. I’ve also noticed that my life has gone into chaos whenever I haven’t followed the system.
I do recommend that you read Sweeney’s books and watch his TED Talk. He’s been following the system much more consistently and for much longer than I have. His life is great proof that the system works.
The 7 Buckets Money System, as you can tell from its name, has 7 buckets. Each bucket has its own purpose for the money that’s placed in it. For the purposes of this analogy about ransom, in the section titles, I’m going to refer to each bucket as being a ransom demand. The buckets are Income Tax, Investing, Spending, Education, Play, Giving, and Necessities.
If you meet each one of these demands, then you have a very full life. Not only that, you’re also paying your ransom and buying your freedom from slavery, whatever slavery you happen to currently be caught in.
Keep in mind that when you gain your freedom and even as you gain your freedom, that you can be a liberator for others.
“The best way to help the poor is to not be one of them.” – Bob Harrington
Your capacity expands as you grow in freedom. Which would you rather be: a slave or a liberator of slaves?
Search deeply. Your heart knows the answer.
Before I continue, it’s important to note that each of the 7 buckets can be a physical bucket or they can be bank accounts. For the sake of simplicity, I prefer bank accounts rather than having to divide exact amounts of physical money into each bucket.
You can use a chequing account for the Necessities bucket and from there, you can divide the amounts for the other buckets into savings accounts. The nice thing about online banking is that you can also give each account a nickname, and the nickname can be the name of the bucket. It could be as often as once a week that you divide the amounts into the various buckets. Perhaps a certain day each week. You might even schedule a time for that and keep to your schedule.
Now it’s time to get started with the first bucket, the first ransom demand.
Ransom Demand #1: Income Tax
This seems like as good a place as any to mention that I’m not a lawyer or an accountant or a financial adviser. Please consult with your lawyer and with your accountant and with your financial adviser before you apply anything you read here. I am not legally responsible for whatever actions you take and for whatever results you get. I’m simply sharing what I have found to be helpful. Your mileage may vary.
If I include a link to spreadsheet templates that you can use for doing these various calculations, then I’ll update this post.
UPDATE: Here are the spreadsheet templates that you can download and use to calculate your ransom. No sign up required.
Whether you use Microsoft Excel or Google Sheets or Apple’s Numbers or some other spreadsheet program, the same principles apply. Start with an amount at the top and work your way down through each of the buckets / demands in the same order as described in this post.
The first bucket is Income Tax. If you’re an employee, you can skip this bucket for now because it’s already taken care of for you by being deducted off your paycheque.
If you have to directly take care of your income tax though, you might find this information useful. It’s something I wish I had known before I was self-employed. If I had known it sooner, it definitely would’ve saved me a lot of pain.
The percentage for Income Tax comes from Sweeney’s books, not from his TED Talk. Put 20% of your gross income into your Income Tax bucket. Why 20%?
“If you’re paying more than 20% in taxes, you’re not paying your accountant enough money!” – Kieron Sweeney
As an employee, you’re subject to whatever income tax bracket you happen to be in with your annual income. You don’t get to claim much in terms of deductions and expenses, especially compared to being self-employed.
As a self-employed person, you have the opportunity to claim deductions and expenses which help to reduce your taxable income. You have a lot more that you can claim than if you’re an employee. You might even find that setting aside 20% to cover your income tax is too much. That’s okay. I have found that 20% is still accurate enough and an excellent guideline to follow.
There’s something else worth mentioning here. You could handle all of your expenses through your company. Personal tax rates are higher than corporate tax rates. In other words, money that a person earns is taxed at a higher rate than money that a business earns. Corporate tax rates can be as low as 12% – 15%.
You might even handle all of your finances through your company and have a low enough personal income that you don’t have to pay any income tax on your personal income. It’s something worth talking to your accountant about.
One change like that can save you many thousands of dollars every year and millions of dollars over the course of your lifetime, especially when you factor in that you’ll get a much greater return on your investments when you handle income taxes and other taxes a lot differently than the vast majority of other people do.
Something else that you can look into are tax shelters. I’m not saying specifically to do this. I’m simply mentioning that they exist. There are certain countries or states where you might not have to pay any kind of tax. If you go this route, please let your money grow for the good of others. Please use your wealth wisely and help however you can. Be the greatest philanthropist you can be.
For Income Tax, typically you would only have to pay it once a year before its annual due date. For Americans, that’s April 15. For Canadians, that’s April 30. In the meantime, you get to stockpile the money for your Income Tax throughout the rest of the year and maybe even earn some interest on it. Why not? You might as well get paid for that money before you pay it to the government.
Once you’ve put 20% of your gross income into your Income Tax bucket, the rest of your money is now your net income, your after tax income.
Alternatively, you could put 10% of your gross income into your Income Tax bucket and 10% of your gross income into your Investing bucket, then the rest of your money is now your net income, your after tax income. I learned about this strategy where you apply 10% of your gross income to your Investing from “Rich Habits: The Daily Success Habits of Wealthy Individuals” by Thomas C. Corley. The key is to make sure that the 10% for Income Tax is still enough.
Now that you’ve taken care of your Income Tax bucket, you’ll be dividing 100% of your net income — which is the rest of the money that is left over — into the next six buckets.
Ransom Demand #2: Investing
You’ll notice that when you follow the 7 Buckets Money System, you’re no longer spending all of your money. You’re keeping something for yourself. You’re expanding your life with each month that goes by.
I’m sure you’ve heard about the recommendation to “pay yourself first.” The Investing bucket is where you do that. Put a minimum of 10% of your net income into this bucket. Ideally, you’ll work your way up to 20%. Your investments would grow a lot faster once you’re putting in double the amount.
Let this money grow. Keep the principal amount invested.
There once was a time when I had a written plan for steadily increasing my investing amount of my net income from 10% up to 20%. I recommend that you do the same. Don’t make the same mistake I did though. Keep your steady increases sustainable. Keep them gradual enough and also tied to any increases you have in income. If you simplify your expenses, that is also an excellent time to increase your investing.
For the Investing bucket, there are many resources you can go to for more details on what to do in your Investing bucket so that you can grow your money. These resources include two of Tony Robbins’ books, “Money: Master the Game — 7 Simple Steps to Financial Freedom” and “Unshakeable: Your Financial Freedom Playbook — Creating Peace of Mind in a World of Volatility.”
Robbins indicates the importance of meeting with a fiduciary, which is a financial adviser that can give you helpful advice without any ulterior motives. There are many great, practical concepts in both of those books, ones that are well worth learning and applying.
And yes, there are certain investments that reduce your taxable income and even help make sure that you get an Income Tax refund.
That said, I’m not going to pretend to be some kind of investing wizard. The truth is that I’m basically starting over again from the beginning. I’ve had savings before and I’ve had some investments before, but I’ve foolishly used them up. Thankfully, you don’t have to follow my example in the mistakes that I’ve made.
You don’t have to build up some money and then waste it. Over and over again. Like I have. You can apply a winning system consistently for all the rest of your life. You can apply wisdom and watch your life soar.
I’m rebuilding my life. Sharing what I’ve learned and my progress in applying powerful systems like the 7 Buckets Money System are part of what I can do to help prevent others from making the same or similar blunders that I have.
Onward and upward.
Ransom Demand #3: Spending
The next bucket is for Spending. Put 10% of your net income into this bucket. It’s so you can save up for some bigger purchases such as vehicles and electronics. Only buy any of those items once you have the money available for them.
Simple. Proper use of this bucket helps you avoid going into debt over major purchases. For that matter, you can also use this bucket to help you pay off any debt that you already have.
There are certain effective strategies that you can apply for getting out of debt and staying out of debt. Using the 7 Buckets Money System properly helps you accomplish both of those things.
You can start with paying off the debts that have the highest interest. You could combine that with paying as much as you can at a time on whichever debt could be paid off the soonest and making only the minimum payments on all of your other debts. Once the debt with the lowest amount is paid off, you can move on to the next debt that now has the lowest amount. Rinse and repeat as many times as necessary, and you’ve got the snowball effect until all of your debt is paid off.
Or you could do a consumer proposal, like I did many years ago. It’s better than bankruptcy in the sense that it’s a step above and I was responsible enough to pay off some of my debts rather than not paying anything.
I got to pay off my debts at a reduced amount and without any interest. Better to pay off debt in 3 years rather than who knows how long it would have taken otherwise. It wasn’t one of the prouder moments of my life, but it could have been so much worse.
The key is to not repeat the same mistakes that got me into that mess.
I can face it. I’ve been a financial idiot for so much of my life, and the 7 Buckets Money System has been an excellent guide to steer me through tough times. I decided to write about it because I’ve started using it again, and I can already see my life being much better organized. I’m giving myself the chance to pay my own ransom, too.
Ransom Demand #4: Education
“Good judgment comes from experience. Experience comes from bad judgment.” – Steve Siebold
“Gaining wisdom can also be a preventative strategy. No matter how old you are, you will always need to be learning something.” – Kieron Sweeney
The Education bucket acknowledges the necessity of being a lifelong learner. Besides colleges and universities, education is available everywhere, including online and in person. There are books, audios, videos, courses, programs, seminars, mastermind groups, and so much more. Put 10% of your net income into the Education bucket, and make sure to use it.
For me, learning is one of the greatest pleasures in life. I’ve read the biographies of many successful people, and one thing they had in common was that they made sure to get education however they could.
In many cases throughout my life, I’ve learned too much and I haven’t applied enough of what I’ve learned. So I do need to mention something very important here. Yes, learn for the fun of learning. However, do make sure to apply whatever you can. All the education in the world does us no good unless we make use of it.
Going forward, I’m looking back to what I’ve already learned and seeing what I can apply from that. Granted, I keep learning new things, too. Wisdom is found somewhere in the balance.
As long as whatever you learn changes your daily behavior, you’re really on to something.
“We first make our habits, and then our habits make us.” – John Dryden
Ransom Demand #5: Play
Isn’t it great that one of the ransom demands is for you to have fun?
Reward yourself for all your effort in life by using the Play bucket. Put 10% of your net income into this bucket and spend it all, ideally every month. If you need to save up longer for certain Play expenditures, then spend all of the money in your Play bucket every three months.
“Make sure this is money you really enjoy spending!” – Kieron Sweeney
Play covers a wide variety of areas and activities. These can include restaurants, fun activities, and travel. This is money that you ought to really look forward to spending. Get creative!
Ransom Demand #6: Giving
“Fully experience the joy of sharing your income every month. It can be the same recipient each time, or it could change or rotate.” – Kieron Sweeney
We live in a loving universe, even though it doesn’t look like that sometimes. Everything is working out for our higher good, and you get to be a very important part of that. You can be a source of transformation through your money, through your effort, and however else you can. The only limit is your imagination.
“Giving away money on a regular basis sends a powerful message of affluence to the universe.” – Kieron Sweeney
You could consider the Giving bucket as being flexible. The usual recommendation here is that you put 10% of your net income into the Giving bucket.
You could also put 5% of your net income into the Giving bucket and volunteer 5% of your time. There are 24 hours in a day and 168 hours in a week. 5% of each day is 1 hour and 12 minutes. 5% of each week is 8 hours, 24 minutes.
That reminds me of a sample schedule that Napoleon Hill provided in his book “How to Sell Your Way Through Life.” You’ll see that the schedule accounts for all 24 hours in a day. It’s from the first page of chapter 19, “How to Budget Your Time.” There are “8 hours for sleep, 8 hours for one’s vocation, 4 hours for recreation and health, 2 hours for study and preparation, and 2 hours for extra service for the benefit of others, without pay.”
While “2 hours for extra service for the benefit of others, without pay” might sound like a lot, it’s pretty close to the 1 hour and 12 minutes amount, which is 5% of each day.
“If you really feel you can’t spare the money right now, then give your time to a cause. … There are many ways to give back.” – Kieron Sweeney
You can grow rich in giving, however you do it. You could give to charities and receive charitable receipts, which will reduce your taxable income. Or you could give more directly to those in need.
You could volunteer your time and show yourself that even your time is abundant. You have enough to share so that others may benefit from your service. Sometimes, the work is its own reward.
I see creating this website as a labor of love. In these early days, not many people know about it. I’m working for free, but I’m not doing this for the money. I know that this work will find its audience, and its audience will find it. I’ll keep following the step by step system that I’m learning. And who knows where things will go from here? The key is consistency and continued effort. Keep on going. Keep on giving.
Ransom Demand #7: Necessities
So, what’s left? The Necessities bucket. Depending on what percentage you used for the other buckets, that will determine what percentage is left over for this bucket.
As an example, if you put 10% of your net income into each of the previous five buckets (Investing, Spending, Education, Play, and Giving), then that leaves 50% for Necessities.
That needs to be enough to cover your living expenses, your mortgage or rent, your utilities, your food, your phone bill, any other bills, transportation costs such as transit or car expenses, debt payments, clothing, and anything else that fits in here. Take care of yourself.
If you need more than 50% for your Necessities, then you can adjust the percentages in certain buckets to free up the space. Basically, that could be any bucket except for Income Taxes and Investing.
“If you currently are spending more than 60% of your income on the necessities for your daily existence, it’s time for you to look at downgrading your lifestyle.” – Kieron Sweeney
Simplifying your lifestyle allows you to free up money that will help you drastically improve your life. You’ll be investing in yourself. You’re worth the investment.
Speaking of investment, if you scale up your Investing bucket from 10% to 20% of your net income, then it could still be 10% for Spending, 10% for Education, 10% for Play, and 10% for Giving, but it could now be 40% for Necessities. Imagine having your various living expenses covered with only 40% of your net income!
To a certain extent, you can adjust the percentages in the various buckets however you need to. Not all of these percentages are set in stone. Some of them are adjustable, based on your current condition and also based on how much you can improve your life. You are the architect of your own life. The 7 Buckets Money System is an excellent tool for very intentional life creation. Use it.
“Begin as soon as possible.” – Kieron Sweeney
I threw a lot at you with all of these buckets. I’ve known about this system for years, and I still have to remind myself what each of the buckets are and what percentages go into each of them. I realize that’s because I haven’t used the 7 Buckets Money System consistently enough. When I have used it, my life has been much more organized and clearer.
So here’s a quick recap of the 7 ransom demands / buckets, along with the recommended percentages, before I send you off to apply this system to your life:
- 20% for Income Tax. Once you’ve set that amount aside, everything else is your net income. Divide 100% of your net income into the next six buckets.
- 10% for Investing. Ideally 20%, but we’ve all gotta start somewhere. Let this money grow. Keep the principal amount invested.
- 10% for Spending. This is where you save up money for larger purchases so that you can buy them without going into debt. This is also a bucket that you can use to pay off your debt, too.
- 10% for Education. Embrace being a lifelong learner with this bucket. Expand yourself.
- 10% for Play. Pay yourself to have fun. Reward yourself.
- 10% for Giving. You are already wealthy beyond your wildest dreams. Prove it through your generosity.
- 50% for Necessities. Take care of your living expenses here.
For other guidelines, refer back to the Ransom Demand sections above. You have what you need to get started.
Your life is yours to do with as you please. Make me proud. Buy your freedom.
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Until next time,