How to Achieve Financial Freedom With The Five Bucket Method

Posted on / by Natalie Sisson / in Entrepreneurs, Guest Contributor Post / 4 comments

Editor’s note: Who doesn’t want to achieve financial freedom? Tell me you don’t dream of the day when you can just kick back on the sofa with your glass of wine; not having to worry about where the money is coming from or where it’s going. Well, Clayton Daniel, our guest contributor, might just have an answer for you in this post. Read on to find out how you might be just a few steps away from total financial freedom.


Ryan Holiday

Not too long ago I was sauntering around Martin Place in my finest suit. I’d catch the elevator to the 23rd floor, and step out into my office. Though I had staff to handle the rudimentary side of the business, I was always the one who spoke to the clients.

As a former tax accountant and financial adviser, I’ve met with a wide variety of people to discuss their money concerns and goals.

Given this experience, I can say everyone is intrinsically unique but there are trends in behavior. Weak points in the human condition perhaps, but time and again I have seen many people fall into the same traps.

If my former financial advice website was still public, you would have seen two big words, front and centre in blue font – ‘Financial Freedom’. I built a career around asking people what their version of financial freedom was.

My job was to get to the heart of what they wanted out of life, and then help create the desired result with their money.

The reason a financial adviser is so well placed to handle this question is because money and life are inextricably linked.

Money decisions are life decisions, and life decisions are money decisions. They affect each other equally.

That’s not to say more money automatically equals a better life or vice versa. Au contraire, my friends. Like when I was a full-time touring and recording musician in my early twenties, some of the best times in my life were when I had no money.

And some of the worst were when I had a lot.

I guess that insight allowed me a unique perspective. As I’ve built my life up from a broke kid living at the end of a dirt road to an entrepreneur with a successful exit under my belt, I’ve personally lived every stage of the intersection of lifestyle and money.

As a result, my focus as a financial adviser was on ‘how to get the most out of your money,’ rather than just ‘how to make more of it.’

So let’s go through the framework of how you can achieve financial freedom.

Let’s make a deal. If you’re willing to spend the time to think about what financial freedom means to you, I’ll make sure you get there in the most efficient way.

First, let’s set expectations about your job and mine. Well, it’s your job to decide what financial freedom means to you.

  • Do you want to be rich?
  • Do you want more free time?
  • Maybe you want a location independent business?

This part is your responsibility. You have to clarify what you’re personally aiming for. This is a big topic in itself, so luckily Natalie covered the ground earlier here.

The second part of your job is to ensure that you are profitable – whether you are a full-time entrepreneur or side hustler. You have to make sure money is coming in.

You may wish to outsource this responsibility, but you can’t. You’re the only one who can do this. For those of you who are already there – awesome.

For those looking to get off the ground click here, or if you’re ready to get serious, try Natalie’s course on how to be profitable in 30 days.

So what’s my job as the financial adviser? My job is to make sure you reach your version of financial freedom. As I mentioned early on, more money doesn’t equal more financial freedom. That’s a very funny thing you learn early on in the personal finance game.

To be financially free doesn’t mean ‘to be the richest.’

We are going to implement a system that will maximize every dollar you have, and ensure it is going to the right place. It will remove you, the fallible human with emotions, from the center of your financial life, and reduce the decisions you make.

This, in turn, will improve your financial outcomes, and surprisingly your personal and professional results too.

Why removing yourself from financial decisions is the key to success

‘Why should I remove myself from my financial decisions?’ I hear you ask. The answer is simple – decision fatigue.

Decision fatigue is what happens at 3 pm when you are ready for the day to be over and need another coffee. It’s why you sometimes struggle to get work done, even when a deadline is looming; why stress is on the rise; and the reason why it’s hard to create a unique lifestyle that fits what you want out of life.

While the concept of decision fatigue has been around since Roy Baumeister’s famous study in 1998, it wasn’t until the likes of Steve Jobs and Mark Zuckerberg started wearing the same outfit every day did it move into the mainstream.

Funnily enough, I never set out to learn about decision fatigue. But rather, once I had implemented an automated system for my client’s day to day cash flow, their lives improved exponentially. It was strange to watch.

All my clients were getting better financial results, which is what I expected. Then they started getting bigger bonuses, built profitable businesses, and began new happy and healthy relationships that enriched their lives.

At first, I was just happy for their success, not realizing I had anything to do with it.

But then they started getting amazing promotions, became financially secure enough to start families, and started taking extended vacations.

As all of this good fortune was unfolding around me, it still didn’t click!

But once my clients started receiving awards not just for best in their corporate company, but best in their entire field, it finally dawned on me that perhaps the system that I had created was helping in some way.

Turns out, I had created a way for people not just to do better with their money, but also to live a better life. By removing them from the everyday thinking process regarding money, they had more headspace for things that were important to them – time with their families, traveling the world and devoting time to advancing their career.

This reduction in decision fatigue – resulting in cognitive minimalism – turns out to be a massive advantage. If you consider for a moment, from the time we wake up and grab your phone, that little piece of modern technology will distract and interrupt you one hundred and fifty times a day.

We’ve always had work distractions; social and relationship distractions; advertising and shopping distractions; money and other lifestyle distractions.

But now we have a device that takes up every spare second.

And the thing is, this isn’t going to change. There’s no point to saying ‘let’s go back to the good old days’ because humans don’t work like that. Instead, adapt to the changes, stay ahead of the game and get big results from small changes.

And what small changes did I stumble upon while handling the finances of dozens of people?

Automate your everyday financial decisions.

The reason automation works is because money is always playing in the back of your mind. It takes up a big slice of the pie. Combining the research on decision fatigue with my own client experiences, I can say without a doubt that having unspent money in your account drains you.

When you have ‘spendable’ money in an account, everything is a purchasing option. From coffee to a handbag to a trip to Italy. And every time you consciously or unconsciously say ‘no,’ you’re reducing your capacity to make good decisions.

By placing a single barrier between you and your spendable money, you can silence the constant spending interruptions and reduce decision fatigue.

No longer do you have to waste your ‘decision credits’ by using self-control and self-discipline. This, in turn, increases cognitive minimalism, which you can use to make better decisions, and start improving every area of your life.

I’ve seen time and time again, those who outsource their financial life increase their ability to achieve financial freedom. Why? Because they can afford to spend more time on two specific topics:

  1. What they are working towards
  2. How to become more profitable

That’s what we are going to go through now. This is how you can leverage technology to automate your financial decisions so you can spend more time doing things that are important to you. So let’s get down to the details.

How to achieve financial freedom through automation

We’ll use the Five Bucket Method to set it all up, and the easiest way to get started is to download the Five Bucket Calculator here.

Whether you are a full-time employee, side-gig hustler, or full-time self-employed, you should run every regular salary through this method.

It starts with the Cash Hub

As you are starting something new, we need to change your behavior. And the best way to change your behavior moving forward is to change how you behave now. So we start by opening a new account called the Cash Hub.

This account will be your new salary account which you update with your employer (whether that’s you or not). This new account will not have any card attached to it. The only way you can access this money moving forward is through ongoing automatic transfers.

Once the Cash Hub is up and running, we can move on to the Five Bucket Method.

You can use the Five Bucket Calculator to calculate how much you need to transfer to each bucket (a new account per bucket), and once you know how much needs to go to which account, then it’s up to you to set up the ongoing automatic transfers from your online banking.

Now that you know the nuts and bolts, let’s get started.

Bucket #1 of the Five Bucket Method: Fixed Cost Bucket

The first bucket is the ‘fixed cost bucket.’ This bucket has first priority as all your regular bills, credit card minimum repayments, and recurring expenses come from this bucket.

It is the most important bucket because it represents money that isn’t yours. This money takes a scenic tour through your accounts, but you have no control over this amount. The best description for this bucket is, ‘reduction in your income.’

Once you have a list of all your regular fixed costs, call the product/service provider and redirect all of them to this new account called ‘fixed cost bucket.’ Moving forward, you will never have to think about paying these regular amounts as they will all be coming from the one single account (as opposed to many different accounts and credit cards). Your only job is to set up the automatic regular deposit into this account as well as the payments that will come out of this account.

Bucket #2 of the Five Bucket Method: Spending Bucket

The second bucket is the ‘spending bucket.’ This is obviously the preferred bucket and represents how much you can spend on yourself guilt free every week. From groceries to shoes, and ice cream to sushi.

This amount will become the sole channel for you to interact with your money moving forward, as everything else will be happening in the background.

Bucket #3 of the Five Bucket Method: Debt Bucket

The third bucket is the ‘debt bucket’. Now, this bucket is the least favorite bucket. However, we need to take care of it, especially if your debt includes personal loans, car loans, or credit cards.

While the regular minimum repayments will be coming from the fixed cost bucket, this bucket will aggressively pay down the debt.

Here is a great rule of thumb to decide how much to pay:

  • Debt (not including mortgage) >10% of annual salary – 30% of your salary towards paying it down
  • Debt (not including mortgage) <10% of annual salary – 10% of your salary towards paying it down
  • No personal debt – an extra 10% to share among Buckets #4 & #5

Bucket #4 of the Five Bucket Method: Lifestyle Bucket

The fourth bucket is the ‘lifestyle bucket.’ This amount is to fund a big-ticket item such as a holiday or a new car or to build up enough capital to start a business. It’s a fantastic bucket because while you are being diligent elsewhere, this bucket exists to ensure you get to do what you really want to do in life.

As I’m equally interested in living a good life today and tomorrow, we ensure your buckets are set up to facilitate the present and the future.

But this is the bucket you should focus most on; this is the bucket that allows true freedom.

How much goes into this bucket will depend on how much debt you are in (not including mortgage):

  • Debt >10% of annual salary – you’re not ready to build the Lifestyle bucket
  • Debt <10% of annual salary – put 10% of salary towards Lifestyle bucket
  • No personal debt – put 15% of your salary towards this bucket.

Bucket #5 of the Five Bucket Method: Investment Bucket

The final bucket is the ‘investment’ bucket.’ This will ensure your financial freedom exists long into the future.

True financial freedom is not just enjoying yourself today, but in the future too.

This bucket will pay you an income in the future when you no longer work. Its job is to grow as much as possible so that when you retire, you can choose to continue to live an awesome life.

The best way I have found to achieve this is your retirement account. No matter where you are in the world, the government always incentivizes citizens with tax breaks to build their retirement account.

The rules of thumb here are exactly the same for the Lifestyle Bucket. How much to put into this bucket will depend on how much debt you are in (not including mortgage):

  • Debt >10% of annual salary – you’re not ready to build the Investment bucket
  • Debt <10% of annual salary – put 10% of salary towards Investment bucket
  • No personal debt – put 15% of your salary towards this bucket.

Now for those who go out and set up the Five Buckets (a new account for each) – I congratulate you.

You will join the ranks of my clients who would pay me a lot of money every year to not think about their money.

An even easier way to achieve financial freedom

But . . . I am aware that some of you will find the Five Bucket Method too hard. In that case, I have a much more simplified version – two buckets.

The two bucket version reduces the complexity and still achieves 50% of the benefits.

It goes like this:

  1. One account is a combination of your Cash Hub (salary account), Fixed Cost, Lifestyle and Investment buckets. This account doesn’t have a card attached to it but will have money automatically withdrawn for payments, just like the Fixed Cost bucket.
    The only reason you really ever need to log into this account is when you want to pull out money for your short term saving plans.
  2. The second account is your Spending bucket. It simply receives an amount for you to spend each week.

And that’s it. Two buckets.

Implementing even these two buckets will remove your ‘spendable’ money from immediate access, which will reduce your decision fatigue and will help you achieve financial freedom.

You can achieve financial freedom! It is possible if you clear your mind by automating your financial life.

With less control over your money, you ultimately end up with more of it. Use this money to pursue a life you’ve always dreamed of living.

Don’t get bogged down making every single financial decision or constantly trying to get ‘more’ money. Automate your financial life using the Five Bucket Method, so you can buy time, find new experiences, and keep more of what you worked for.


About our Guest Contributor: Clayton, a lifestyle financial expert, is the author of the book, Fund Your Ideal Lifestyle. He specializes in cognitive minimalism – the belief that outsourcing the greatest stresses in life such as money, result in better performance across every area of life. For more lifestyle and finance advice, check out his website

Or get started by downloading the Suitcase Entrepreneur Financial Freedom toolkit here.

All set with your financial goals, but need help to free up more time? Check out my free video training:

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