How I Split My Income Between Savings, Investments and Personal Spends

At this point in my life, I am very grateful that I am able to earn a (mostly) passive income from my business without really spending a lot of time or effort on it. This gives me the freedom to spend my time as I wish and only work when I feel like it.

I earn between £2,000 and £4,000 per month (it varies) but this is more than enough to cover my living expenses. I am lucky enough to have a fair bit left over to save or invest. In this post, I will be sharing how I allocate my monthly income into different ‘pots’.

Overview

I allocate my income into four categories:

• Personal: This is the money that covers my personal and living expenses. This includes mortgage, bills, days out, tobacco, holiday savings, house repairs etc.
• Business: This is the money that I keep in my business to cover business expenditures and trying out new business ideas.
• Savings: These are very low risk cash savings.
• Investments: These are higher risk/reward investments.

Business

My business has very low overheads. We’re talking about 3.5% of revenue each month, so very little of the cash my business earns is spent on business expenditure.

I also keep a little bit of cash in my business account to cover any unforeseen business expenses or to test new ideas, such as an advertising campaign.

Therefore I only keep about 10% of my income in the current account I use for my business.

I use a Barclays current account for my business banking.

Personal Spends

I need about £1,150 minimum each month to cover personal expenses that maintain mine and my family’s standard of living. I also like to have a little more in my bank account for beer money, impulse buys etc. and to cover any dry months where I don’t earn as much as usual.

40% of my income goes straight into my personal account every month.

I use a Lloyds current account for my personal banking.

Savings

Low risk/reward savings are basically my cash savings, which includes the money I owe the taxman – I might as well earn a little interest on it before I have to pay it, right?

I keep about 35% of my income back each month to cover my income tax and National Insurance and another 10% for my own personal savings.

Obviously, I cannot afford to be speculative with this money because not being able to pay HMRC is my worst nightmare!

So, 45% of my monthly income is transferred to these instant access savings accounts and regular savers, where my cash is covered by the FSCS.

Investments

I also use 10% of my income for higher risk/reward reward investment vehicles.

At present this includes a stocks and shares ISA and an Innovative Finance ISA.

I’m seeing very high returns on these at the moment (25% and 8% respectively) but they could also go down by that amount as well, so I am cautious with how much I invest.

Allocations Depend on Monthly Income

As I mentioned earlier, my income does fluctuate, however the graphic below shows the actual amount of cash allocated to each pot depending on monthly income earned, whilst the ratios remain the same.