Six Stones – 1. “Flow”

Welcome (back) to our Six Stones series. Our financial adviser, Jordan, is sharing as many tips, ideas and advice for people going through a divorce as a humble blog will allow. He’s staying away from specific financial advice – it’s all general advice over here, be sure to get personal financial advice before doing anything – but we hope you find some useful information in here as you navigate through/out of your divorce.

Your Financial Water Cycle

You might remember that poster from high school science with the body of water, rain clouds, mountains and rivers titled ‘The Water Cycle’ or something similarly inspiring.

Well, let’s borrow some of that imagery to help you change how you think about your money.

Let’s start with your income – The River.

This flows into your life.

Sometimes it’ll be full, threatening the edges, and other times it’ll be a trickle.

Regardless, there is a riverbed, ready and waiting to transport money into your life. This feeds the entire system, so it’s important it’s a healthy ecosystem.

How should you direct the water though?

Directing the Flow

Well, the first stop is The Dam of Needs.

A dam wall is built across The River, and the water builds up here.

And if the flow in is higher than the flow out, the water level will rise.

The Dam of Needs is there to provide for all of the things you Need to pay for, like:

–          Housing (rent or mortgage);

–          Debt repayments;

–          Food and groceries;

–          Utilities;

–          Transport;

–          Insurances.

These expenses are drawn right out of the water behind the wall, some ferried out by buckets – others (like your mortgage) they just dump a hose in and start pumping it out.

Now, let’s continue squeezing this metaphor.

The Three Ponds

Imagine the dam wall has three outlets, flowing to three ponds:

–          Smile;

–          Joy;

–          Safety.

The first pond – Smile – provides for all of those things you Want to do in the short term.

Referring back to your Wants is really helpful here – this is where you actually pay for them from.

Beers after work – Smiles.  Smashed avo for days – Smiles. Round of golf / staycation / getting the car washed – Smiles.

These are all the things that bring a Smile to your face and can be done right away.

This pond will never get particularly deep, because it’s going to keep pouring out towards the things that make day-to-day life fun.

But – importantly – once it’s empty, you have to wait for the next release out of the Dam of Needs.


The next pond – Joy – is the key to this whole model.

This one is where you collect the money to pay for the big things in life that bring you Joy.

It might be an overseas holiday, a new car, renovating the bathroom, a games console, or anything else that’s going to take more than three months to save for and that will bring your life further joy.

This pond may not exist at the moment for you. That’s ok.

You can dig it out pretty easily – deciding to do the work is the hardest part.

Once you’ve done that, then the flow will start pooling there.

This pond will get deeper over time. It’ll deepen and expand and become a really nice spot to sit and have a bite to eat.

Sure, occasionally you’ll drain it, but there’s always going to be enough water in there to keep it looking lovely.


And the third pond is called Safety, which you will use in a few different ways. But most importantly – it’s always fed, directly from the Dam of Need.

That flow of funds, via the Safety outlet, will be directed in a few different ways.

First off – this pond will always have water in it. Imagine one of those depth markers you see near flood prone rivers – this pond should never be lower than half a metre.

The first job is filling it up (it’s probably bone dry at the moment, so it’ll take a bit of time). So you divert your Safety outlet to your pond, to start filling it up.

Once you’ve hit the first marker, then we can redirect some of the flow to other areas, but for now the name of the game is to fill it up.

The Ratios

Ok, last pond reference – there are a few opinions on how they should be filled up.

How much of the river should land in each pond?

Elizabeth Warren (US Presidential hopeful and Harvard finance expert) advocates a 50 / 20 / 30 split, with:

–          50% going towards Needs;

–          30% going towards Wants;

–          20% going towards the Future.

Whereas Australia’s Barefoot Investor, Scott Pape, suggests a more generous allocation to Needs (because he remembers all employees should have 9.5% of our salary going towards the Future, by virtue of super).

The specifics aren’t super important – simply by having an allocation for the different parts of your financial life, you can automate just about the entire process. That’s where the real value is.

But, for what it’s worth, in our model, we follow the Barefoot Investor structure of:

–          60% going towards your Needs

–          20% going towards your Wants

–          20% for your Worries

This can be applied to just about any income and makes it easy to automate a huge chunk of the process (taking it out of your brain, which leaves room for much better stuff).

Our next post will be apply this Pond Structure to an example to give you an idea of how it can help in the real world.

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