Megan Grant is the owner of Spark Content Agency and also teaches freelancers how to grow their own businesses through her online program, Revenue Spark. After discovering freelancing, he realized that thanks to the Internet, we could take back control of our time, freedom, and finances. Now, he finds joy in teaching other freelancers how to leave behind the hustle culture encouraged by corporate America and build a sustainable business that fits their lifestyle. Megan loves connecting with like-minded people!
We’re going to guess that you wanted to start a business to maximize your earning potential. At the same time, you probably don’t need us to tell you that one of the most common reasons businesses fail is because of improper cash flow management. While every business is different, a common method for managing revenue and expenses is budget bucketing.
In this article, you will learn:
What is meant by budget in buckets? How this approach can benefit you as an entrepreneur. How to get started with bucket budgeting.
let’s go!
Wait, What’s Bucket Budgeting?
Budget bucketing may seem self-explanatory. This means organizing your expenses into different categories (read: “buckets”) so you can better plan your finances, pay them on time, and ideally, save money. This is a more modern version of envelope budgeting, where you literally stash your cash in designated envelopes for different types of expenses. Whatever is left at the end of the month can be saved or spent on excess.
There are all kinds of ways to bucket your finances, but common categories include:
Sign up for 12 new, free courses on topics ranging from Tax Revenue Rent Software and Tools Payroll Food and Entertainment SBA Loans to Influencer Marketing. Verizon Small Business Digital Ready. What are the benefits of budgeting in buckets?
Obviously, you might think it’s best to put all your business money in one bucket for stretching, but there are a few reasons to consider bucket budgeting instead.
1. It tells you where your business is spending the most money
Bucket budgeting can be very revealing because it forces you to acknowledge the most expensive parts of your business. And, you may find that these expenses don’t add up.
For example, let’s say one of your buckets is Software and Tools. You may find that these expenses add up to $1,000 a month, and yet you only use these appliances once a week. Is it worth the cost? Are you getting a return on that $1,000? maybe maybe not. But without bucket budgeting, you have no way of finding out.
Thus, bucket budgeting is a simple way to save money for your business!
2. Bucket budgeting makes tax season a whole lot easier
No one likes to deal with taxes, but as an entrepreneur (as a man), it is inevitable. The more organized you are as a business owner, the easier tax season is going to be. Budgeting in buckets can help with this.
As an example, let’s talk about your business expenses—which you can deduct to help lower your taxable income. If you have a home office, you probably have one bucket of home office expenses. In this bucket, you have expenses such as the rent/mortgage you pay based on the square footage of your home office, WiFi, phone bill, etc.
As tax day approaches, you’ll be able to more easily determine what you’ve spent and what you can deduct from your home office expenses thanks to that bucket.
3. The bucket can prevent excessive spending
Swiping your credit card carelessly can really hurt your business bank account. Bucket Budgeting Can Help! “I’m going to tighten the food and entertainment budget” is much more arbitrary—and thus, likely to fail—than setting aside $300 a month for that specific purpose.
When you can make your budget less intangible and more concrete, you can maximize your business savings.
Pro tip: Once a month, sit down and compare your budget to your actual expenses. If you find that you’re regularly setting aside $500 in a bucket but only spending $150, it’s probably safer to allocate some of that extra money to something else.
How to get started with bucket budgeting
There’s more than one way to go about this, but it’s the approach that has made budgeting in buckets really easy for me and my business. (For context, I run a small content agency and have a team of four part-time writers.)
I went online to my bank account and looked at all the transactions for the last 90 days. This gave me more insight into regular expenses rather than guesswork. I also caught some expenses that were sneaking up on me that I needed to get a handle on – more on that in a minute! As I jotted down my transactions, I started putting each of these expenses into my buckets. Business related food and Starbucks went under race food. Uber rides to customers’ offices went under transportation. My social media management went under subscriptions, payroll software, and bookkeeping tools and software. Once I had a better idea of what a bucket cost each month, I went through them all with a fine tooth comb. This method was very revealing. For example, I discovered that I was spending almost $600 per month on software without even realizing it. (That number used to be less than $100!) So, I went through all of my subscriptions and was able to eliminate some that I hardly use or at least downgrade my subscriptions, ultimately saving me money every month. Saved.
I still audit my buckets once a quarter, but on a more regular basis, I’m just making sure I’m staying under budget and paying all my bills on time.
What type of bank account do you need?
No two entrepreneurs (or businesses) are exactly alike, and if your business is just starting out, you may actually be a sole proprietor on paper and thus use your personal bank account.
I am not here to tell you what kind of bank account you need. But I will say that if you get a separate business checking account, it will likely come with a number of features that will help you better manage your business finances. For example, depending on which banking platform you use, you may have access to multiple checking accounts – ie buckets – that you can use to organize your finances. (There are other benefits too, such as a higher limit on the number of transactions you can make and the amount of money you can move to and from your account, but that’s beyond the scope of this article!)
Using accounting software is also an option. For example, I use Xero for my small business. Within Xero, I collate all my transactions based on the category they belong in.
Some business owners also use good old fashioned spreadsheets. You can absolutely do it this way! Just know that it’s more manual and leaves more room for human error.
Is Bucket Budgeting Right For You?
I understand that changing your budgeting style can be intimidating. Sometimes, we don’t want as much visibility into our finances because we’re afraid of what we might find. But take it from this girl who used to be terrified of anything money-related: If you can force yourself to face that fear and make friends with your business’s finances, you’re done. You can use this knowledge as a tool to reach the next. success level.
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