Cashflow Piggy Banks: A Simple Way to Master Your Business Money 💰
As a small business owner, keeping track of money can be stressful. You might see a lot of cash in the bank, but how do you know if it’s really yours, or if it’s earmarked for a big expense that’s coming up?
Cashflow Piggy Banks are a simple system to solve this. Think of them as separate savings accounts you set up for every big expense your business has. When you get paid, you immediately put the money that isn’t yours into the right “piggy bank.”
The Core Advantage: Peace of Mind
This system has two huge benefits:
- Zero Stress: You’ll never be surprised by a bill again. When a major expense (like tax or rent) is due, the money will already be waiting in its dedicated account.
Spend with Confidence: The money left in your main account after you’ve funded your piggy banks is your true, available spending money. You can use it for day-to-day operations without worrying about underfunding a future bill. Yellow Belt
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Example: Your Tax Piggy Bank 🏦
Taxes are one of the biggest and most stressful bills for a small business. Let’s use the Tax Piggy Bank as the first one you set up.
1. Set It Up
Create a separate, new bank account and label it “Tax Savings” or “Tax Piggy Bank.”
Pro Tip: To make sure you don’t accidentally spend this money, set up this account at a different bank, or choose one that is harder to access (e.g., you can’t instantly transfer money out using an app). Make it inconvenient to touch!
2. Fund It Regularly
Every time you get paid (or at least every two weeks), you need to move a portion of that income into the Tax Piggy Bank.
The Simple Calculation:
- Estimate how much tax you will owe over the year (e.g. $26,000).
- Divide that number by how often you fund it (e.g. $26,000 / 26 fortnights = $1,000).
- Automate a transfer of $1,000 to the Tax Piggy Bank every two weeks.
3. See the Magic
When your big tax payment is due—say, $13,000 every six months—you simply move the money from your dedicated Tax Piggy Bank and pay the bill. Because you’ve been putting money aside consistently, your main account is untouched, and your business cashflow stays smooth.
Other Useful Piggy Banks
There is no limit to the number of piggy banks you can set up. If something is a big, “lumpy” expense, give it its own account!
| Additional Piggy Bank | What It Saves Money For |
| Lumpy Investments | Saving up for a big ticket, infrequent, purchase like a new delivery truck, a big piece of equipment, or a major software purchase. |
| Stress Test/Hiring | If you plan to hire a new employee, start saving their future salary now. If your business can handle the savings drain, you know you’re financially ready to hire. Particularly useful when facing the big wage expense of moving from solopreneur to Micro (1-4 staff) |
| Growth/Buffer | A separate savings account to hold money from your Profit Piggy Bank. This money is a deep emergency fund or capital for expansion. |
| Owner’s Treat | A small portion of your profit that you set aside to reward yourself quarterly for running the business successfully. |
| Debt Payoff | Saving a regular amount to pay down a high-interest credit card or loan faster. Also handy to stockpile funds necessary for loan interest |
| COGS (Cost of Goods Sold) | To pay for the inventory or materials you need to make your product/service. |
| Salary | To pay yourself (Owner’s Pay) and your employees. |
| Profit | To save the profit your business earns. Do not touch this! It’s your buffer and growth fund. |
| Advance Payment | Some businesses get payment in advance. You don’t want to spend all this before actually earned. So deposit into a Advances Piggy Bank and transfer out of it as the money is earnt |
Why Bother With Piggy Banks
Parkinson’s Law tells us that expenditures will expand to fill the money available. Unless we keep a firm eye on what we spend we will always find “something” that we can spend our money on.
Go to the article: What Parkinson’s Law Tells Us About Wasted Money
Even if we have a budget, we often tend to spend the budget early in the year (“I just have to have a new computer. I will be so much more productive”) and so find ourselves short at the end. You can probably predict expenses reasonably well but there is always going to be uncertainty around your Income from unpredictable events. If you spend your budgeted expenses but have an Income short fall, you are still in financial trouble.
You could achieve the same thing as our physical Piggy Bank accounts by putting the amounts into a spreadsheet or your accounting system.
Unfortunately, numbers in a spreadsheet or bookkeeping system really have very little substance and you will find it very easy to move that money around because it is “just on paper”. The idea of having separate Piggy Banks has been demonstrated, by personal debt advisors to force you to make a conscious and physical effort to move this money around. This acts as a mental roadblock causing you to think “should I really be doing this?”.
You might also find this article on a German habit for managing domestic expenses interesting.
A Disclaimer
We do not know your business and its environment so we can only offer general advice on cashflow management. You should always seek professional advice on specific matters only discussed in general terms here.