Here’s why this is the ULTIMATE Money Management System

How to Track Your Spending for Better Financial Control 

Tom Ferry, the creator of the money management system, says: "People fall into three categories when it comes to money."

1. The first category: represents 80% of people, and they are those with limited or modest income. These people live either at or below the poverty line, so they are considered lucky if their monthly salary is enough to cover their basic needs only. They cannot save or invest, and they cannot enjoy the luxury of life they desire even for a moment.

1. The second category: represents 15% of people and is called the rich (not the wealthy). These people enjoy a comfortable standard of living, as they can save, invest, and enjoy some luxuries such as travel, buying cars, and luxuries. But they are not like the rich, as their wealth is often not passed on to subsequent generations with the same strength as the wealth of the wealthy.

1. The third category: represents only 5%, and they are the wealthy who have huge wealth enough to support successive generations.

Today we will discuss how to manage money for the second category, that is, the 15%. In his book, Tom Ferry poses a pivotal question: “If you receive a text message telling you that $10,000 has been transferred to your account, how much of that money do you actually have?” 

The question may seem simple and perhaps unimportant to some, but Ferry points out that his answer reflects a deeper understanding of money management. The obvious answer is that you have the full amount, which is $10,000. However, Tom Ferry explains that people in the second category see that they actually have only $3,300 of that amount. This difference in perspective is the basis of the best money management system.

Tom Ferry says that people in the 15% group divide any money that comes into their accounts into three sections immediately, whether it is from a salary, a gift, profits, or any other source. These sections are: liability account, investment account, and personal account.

When an amount like $10,000  enters someone’s account, they consider that only one-third is available for personal use, while the other two-thirds are distributed between liability and investment accounts. The liability account is for debts and bills, while the investment account is for growing wealth. They cannot use any of these two accounts, no matter what the circumstances. In contrast, the personal account is the amount that can be spent on daily expenses such as eating, drinking, and entertainment.

Quite simply, this is the secret behind the best money management system, where a portion is reserved for necessary expenses and investments, while a limited portion is left for personal expenses. 

This is where Tom Ferry ends his talk, and now I will share with you some of my personal contributions.

To illustrate the impact of this system in a practical way, let us take a hypothetical example to see how this system can affect our financial lives. I would like to explain to you, dear reader, that I have personally applied this system in my life. I swear to God, if you knew the great impact it had on my financial life, you would not believe it.

Now imagine that there is a person whose monthly salary is $10,000 (the currency or exact amount does not matter, as it is just an illustrative example). Let's assume that his monthly obligations, which he is forced to pay, are $2,500 (which is equivalent to almost a quarter of his salary).

First, let's take a look at what the first category that Tom Ferry talked about, the 80%, does. Once they get their salary of $10,000, they pay their obligations (-$2,500), and they have $7,500 left to live on spending on food, drink, and entertainment until the end of the month, without thinking about the future.

But what if this person applied Tom Ferry's system? Simply put, once he gets the amount of $10,000, he immediately divides it into three sections:

 **Personal account:** $3,300

 **Investments:** $3,300

 **Obligations:** $3,300

Let's assume that the personal account will be fully spent by the end of the month. Now we will focus on the **Obligations account** to clarify the picture.

Account in the first month:

You have $3,300 in the obligations account, and you deducted $2,500 from it for monthly obligations (such as mobile phone bills, electricity, or loans). After the deduction, $800 remain in the account.

**Obligations account:**

- Total amount: $3,300

- Deductions: $2,500

- Remaining: $800

Now, imagine with me that this person continued with this system for 12 months. After a year, he will have $9,600 (800 * 12 months) in his liability account, and this amount may not be touched.

Loans and reducing liabilities:

Let's say this person has a loan of $25,000. By continuing to apply this system, he can let the amount accumulate until it reaches the value of the loan, and then pay off the loan in full and reduce his monthly liabilities. During this period, he continues to pay off his monthly liabilities regularly ($2,500 per month), but the gradual accumulation of the remaining amount makes him able to pay off large loans without feeling financial pressure.

 What happens after two or three years?

After two years, he will have $19,200 in his liability account, and after three years the amount will reach $28,800. If he has a loan, he may have already paid off the loan, which reduces his monthly liabilities from $2,500 to $2,000 or even $1,800. This means that he will be able to save more than $800 per month.

Positive impact:

Imagine with me, dear reader, if this person continues to follow this system wisely and patiently, he will reach a stage where he will be able to buy a new car or even an apartment without having to borrow from the bank. In this way, he will have reduced the burden of rent, and achieved financial stability in a practical and smart way.

As for the investment account, my dear, we agreed that it contains $3300 of the initial amount. After just one year of adhering to this money management system, he will have an amount of $39600 that he can use to start an online project and increase his income from $10000 to at least $15000. Thus, the distribution of the initial money changes, so that the amount of $15000 becomes divided into three parts: $5000 for obligations, $5000 for the personal account, and $5000 for the investment account. That is, instead of the amount being limited to $3300, it has increased to become $5000, and this is the meaning of investment.