Entering the module
Cash flow is three words: in Β· out Β· left. All the principles are about what is left, and when.
π§ Child: money is like water in a bath. The tap is what you receive. The plughole is what you spend. If the plughole is bigger than the tap, the bath empties β however big it is.
π§ Teenager: what matters is not only how much money comes in and goes out, but when. The salary comes once a month, and the bills whenever they like.
π§ Adult: the accounting standard IAS 7 splits cash flow into three parts:
- operating β from day-to-day life;
- investing β you buy or sell assets;
- financing β you take out or repay loans.
The same holds for a household: the salary and the bills are the operating flow, the car is investing, the loan is financing.
The eight iron principles:
- Pay yourself first
- The reserve comes first
- Expensive debt is a fire
- Know where the money goes
- Postpone, but live
- Separate money β separate accounts
- Know how many weeks the money lasts
- Profit is not cash β Summary and your step in Pecuvo
For the youngest Β· ages 6β7
π£ The youngest: When you get coins, first put one in the piggy bank. The rest are for spending. The piggy bank keeps a little money "just in case". That way, if you need something, you have your own coins.
Play together (5 minutes): Act out "a day with pocket money": give your child 5 buttons or coins. First the child drops one into the piggy bank, then "goes shopping" at home with the rest. In the evening, count together what is left in the piggy bank.
A question for the evening: "What would you put in your piggy bank first, and why?"
A game from the catalogue: SP-01 "The three jars" β https://pecuvo.eu/igri/katalog/#sp-01 (in Bulgarian)
Principle 1 Β· Pay yourself first
π§ Child When you get pocket money, first put some of it in the piggy bank β even before you set off for the shop. Whatever is left is for spending.
π§ Teenager Most people spend and save "whatever is left". Usually nothing is left. This principle turns the order around: saving is the first expense, not the last. The idea is old β from George Clason's "The Richest Man in Babylon" (1926): a part of all you earn is yours to keep.
π§ Adult The strongest way is the automatic one: a transfer to a savings account on payday. The study by Madrian and Shea (2001) on automatic enrolment in a pension plan shows that when saving is the default, many more people save. People rarely undo what has already been set up [D]. The amount matters less than the habit. Even a small percentage, automatically, beats a big intention.
π Project / business: set aside the reserve and the taxes at the moment the income arrives, not at the end of the quarter.
Myth β truth
- Myth: "I'll save when I earn more."
- Truth: with more income, spending usually grows too (hedonic adaptation β Module 14). The habit is built on small amounts.
Who profits? You β without having to "decide" every month.
Scene for 3D: two cups under one tap. The child chooses which one fills first. If "spending" fills first, the "saving" cup stays dry.
Your step in Pecuvo: a "savings" goal + an automatic transfer on payday β watch the progress in "Goals".
Sources
- β Clason, "The Richest Man in Babylon", 1926.
- β Madrian & Shea, "The Power of Suggestion: Inertia in 401(k) Participation and Savings Behavior", Quarterly Journal of Economics, vol. 116, no. 4, 2001, pp. 1149β1187 β https://www.nber.org/papers/w7682 (participation rises sharply with automatic enrolment; many stay at the default contribution)
Principle 2 Β· The reserve comes first
π§ Child If your bike gets a puncture, you need money for a tyre straight away. A little money "just in case" means you don't have to borrow.
π§ Teenager The reserve is money that is not for spending and not for investing. It is for the unexpected: illness, repairs, losing a job. It is kept high on the liquidity ladder β in an account, not in something you have to sell (Module 3).
π§ Adult The usual rule is 3β6 months of expenses [P]. It is a convention, not the result of research. The data do show, however, that even a small buffer reduces financial stress and the need for expensive credit (CFPB) [D]. So:
- first a small reserve β for example one month;
- then the expensive debt is paid off (Principle 3);
- then the reserve grows.
How big it needs to be depends on your flow (Module 10). The self-employed and single-income households need more.
π Project / business: the reserve is what covers the gap between "I spent" and "they paid me" (Module 11, Chapter 6).
Myth β truth
- Myth: "My credit card is my reserve."
- Truth: it is debt that gets more expensive exactly when things are hardest for you.
Who profits? You β when a misfortune does not also become a financial misfortune.
Scene for 3D: a house on the shore. The reserve is the wall against the waves. The child builds it brick by brick and sees when the wave no longer spills over.
Your step in Pecuvo: a "reserve" (savings) account + a "savings" goal with a deadline. In "Net worth", see how many months of expenses it covers.
Sources
- β Consumer Financial Protection Bureau: https://www.consumerfinance.gov (the address works; the specific page on emergency savings should be cited)
Principle 3 Β· Expensive debt is a fire
π§ Child If you borrow 10 sweets and have to give back 15, that is expensive. The longer you wait, the more it becomes.
π§ Teenager High-interest debt β credit cards, quick loans, sometimes "buy now, pay later" β grows with compound interest working against you (Module 3, Chapter 6). That is why it is put out first. Research shows that compulsory financial education at school reduces the use of payday loans among young people (Harvey, 2019) [D].
π§ Adult Two repayment methods:
- "avalanche" β the most expensive debt first; mathematically the best;
- "snowball" β the smallest first; small victories motivate.
A study by Gal and McShane (2012) links closing individual debts with a higher likelihood of paying off everything β (data from a debt settlement company; the choice of method is not random). The method you will stick to is the better one for you. Not every debt is a "fire": a cheap, long-term loan for a home you live in is a different kind of decision. The yardstick is the APR β the annual percentage rate of charge (Module 7).
π Project / business: a bridging loan to pre-finance a project is a tool, if it has a clear end and a clear source of repayment.
Myth β truth
- Myth: "Buy now, pay later β no interest, so it's free."
- Truth: often it is interest-free only if you pay on time. If you are late there are fees. And it is easy to pile up many small payments at the same time with different companies β (CFPB, "Buy Now, Pay Later: Market trends and consumer impacts", 2022 β late fees, "loan stacking": https://www.consumerfinance.gov/data-research/research-reports/buy-now-pay-later-market-trends-and-consumer-impacts/, opened 21.10.2026).
Who profits? Lenders, from the interest. Shops β from the fact that you buy more when you don't pay straight away.
Scene for 3D: a house with several fires. The child chooses which one to put out first β the biggest (avalanche) or the smallest (snowball) β and watches how the fire spreads.
Your step in Pecuvo: every debt as a "debt" account + a "repayment" goal. Sort them by interest rate or by size and see how many months are left.
Sources
- β Harvey (2019), Journal of Consumer Affairs 53(3) β see
04_Akademichna_osnova. - β Gal & McShane, "Can Small Victories Help Win the War? Evidence from Consumer Debt Management", Journal of Marketing Research, vol. 49, no. 4, 2012, pp. 487β501, DOI 10.1509/jmr.11.0272 β https://doi.org/10.1509/jmr.11.0272
- β Directive (EU) 2023/2225 on consumer credit β covers "buy now, pay later"; applies from 20.11.2026, with exceptions for very short interest-free deferrals β https://eur-lex.europa.eu/eli/dir/2023/2225/oj
Principle 4 Β· Know where the money goes
π§ Child For one week, write down everything you spent money on. You will be surprised how much goes on little things.
π§ Teenager Small regular expenses β subscriptions, coffees, games, deliveries β look tiny, but over a year they add up to a big sum (the course, S6). A spending plan is not a ban but a choice: where you want your money to go.
π§ Adult The popular 50/30/20 rule β 50 % needs, 30 % wants, 20 % savings and debts β comes from Warren and Tyagi (2005) [P]. It is a useful starting point, but with a low income or a high rent it does not work. What matters is knowing your real numbers. People keep money in "mental accounts" (Thaler) β "the holiday money", "the bonus money". This can help, but it can also mislead: one euro is worth the same wherever it came from.
π Project / business: budget against actuals, line by line, every month. A deviation spotted early is a decision; spotted at the end β a problem.
Myth β truth
- Myth: "Budgets are for people who have no money."
- Truth: a budget is for people who want to decide for themselves instead of watching the money disappear.
Who profits? Subscription companies β from the fact that we don't remember what we are paying for.
Scene for 3D: pipes draining the bath. The child labels each pipe and sees which one drains the most.
Your step in Pecuvo: the baskets (Home, Food, Leisureβ¦) + a budget per basket. At the end of the month β budget against actuals.
Sources
- β Warren & Tyagi, "All Your Worth", Free Press, 2005 (the source of 50/30/20).
- β Thaler, "Mental Accounting Matters", Journal of Behavioral Decision Making, vol. 12, no. 3, 1999, pp. 183β206.
- The "Personal finance" course, S6 β https://dalife.podari.eu/finansi/ (in Bulgarian)
Principle 5 Β· Postpone, but live
π§ Child Sometimes it is worth waiting: if you save for three weeks, you can buy something nicer instead of three small things that you soon get bored with.
π§ Teenager Delaying a pleasure is a skill. But careful: the famous "marshmallow test" (Mischel) predicts much less than was thought. The replication by Watts, Duncan and Quan (2018) shows that the link is half as strong and almost disappears once family background is taken into account [D]. So we do not say "if you can't wait, you won't succeed". We say: waiting is a skill that can be trained.
π§ Adult Postponing has a limit. A life in which everything is put off "for later" is also a bad choice. Some experiences have value only now. Module 16 talks about the balance between true value and missed opportunities. The iron principle is: postpone for a goal, not out of fear.
π Project / business: not every surplus is for handing out. Part is reinvested, part goes into the reserve. The decision is written down, not left to mood.
Myth β truth
- Myth: "Whoever saves everything wins."
- Truth: whoever saves with a goal wins. Saving without purpose is another kind of fear (1997 and "money under the mattress" β Module 2).
Who profits? Advertising profits from "now". You β from the skill of choosing when it is "now" and when "later".
Scene for 3D: two doors β "now" and "later". Behind "later" the present grows, but the candle of "life" is burning too. The child looks for the balance.
Your step in Pecuvo: a goal with a deadline and an amount. Pecuvo shows how much per month. If the amount is too big, change the deadline, not your life.
Sources
- β Watts, Duncan & Quan (2018), Psychological Science 29(7) β see
04_Akademichna_osnova.
Principle 6 Β· Separate money β separate accounts
π§ Child The money for the class's shared present is not your pocket money. Keep it in a separate envelope.
π§ Teenager When you start earning from several places, keep them apart: your personal money, the money from work, the money for a specific goal. That way you see the truth about each.
π§ Adult Personal money β company money β project money. For a single-member limited company, mixing them brings tax and legal risk. In projects with public funds β financial corrections (Module 11). In a family β a separate account for shared expenses saves arguments. Pecuvo is built exactly like this: every space is separate, and only the final amount (salary, dividend) passes from the company to the person.
π Project / business: a separate bank account for the project, a project code on every accounting line.
Myth β truth
- Myth: "The company is mine, so its money is mine."
- Truth: the company's money belongs to the company. It becomes yours when you pay it out lawfully.
Who profits? You β during a check by the tax authority, a project audit and a divorce.
Scene for 3D: a wardrobe with separate drawers. The child mixes everything into one and sees that nothing can be found.
Your step in Pecuvo: separate spaces β "Person", "Family", "Company", "Project". Never one's expenses in another.
Principle 7 Β· Know how many weeks the money lasts
π§ Child If you have β¬10 and spend β¬2 a week, how many weeks will it last? Five. That number is important.
π§ Teenager In companies it is called the runway: how long you can fly with the fuel you have. The sum is simple: cash on hand Γ· monthly net spending [P].
π§ Adult For a household β how many months of living the reserve covers. For a company or a project β how many weeks until the moment you have nothing to pay with. This is the number you need to see every week, not at the end of the year. That is why the Pecuvo portfolio calculates the balance weekly.
π Project / business: the weekly balance + the next expected payment. If the runway ends before the payment arrives β act now: a bridging loan, postponement, negotiation.
Myth β truth
- Myth: "We'll see at the end of the year."
- Truth: at the end of the year it may be too late. Money runs out on a specific Tuesday.
Who profits? Those who see the problem 8 weeks earlier.
Scene for 3D: a plane on a runway. The fuel is the money. The child watches where the runway ends and whether the plane takes off before that.
Your step in Pecuvo: the "Portfolio" screen β the weekly balance and how many weeks the money lasts.
Principle 8 Β· Profit is not cash
π§ Child If you sell lemonade to a friend and they say "I'll pay you next week", you have made a sale, but you don't have the money yet. You can't buy lemons with a promise.
π§ Teenager Profit is on paper: income minus costs. Cash is in the till. The two can be very different if customers pay late or you pay early.
π§ Adult Cash flow β profit [D, accounting; IAS 7]. Receivables β what you are owed β are not cash. Stock is not cash. Working capital and the cash conversion cycle β how many days pass from paying the supplier to being paid by the customer β decide whether a profitable company survives [D]. Many companies go bankrupt while profitable, because they run out of cash.
π Project / business: with public funds, an approved expense is also not cash until the payment arrives (Module 11).
Myth β truth
- Myth: "If there is profit, there will be cash."
- Truth: not necessarily. A growing company pays for goods, rent and wages before customers have paid β and can run out of cash while it makes a profit on paper.
Who profits? Customers who pay late β with your money. Banks β from the loans with which you plug the hole.
Scene for 3D: two dashboards β "profit" glows green, "cash in the till" flashes red. The child looks for where the money is: with the customers, in the warehouse, in the payment that is still pending.
Your step in Pecuvo: in "Company" and "Project", look at budget against actuals together with the weekly balance β not only at the profit.
Sources
- β IFRS β IAS 7: https://www.ifrs.org/issued-standards/list-of-standards/ias-7-statement-of-cash-flows/
Summary Β· The eight iron principles
| # | Principle | One sentence |
|---|---|---|
| 1 | Pay yourself first | Saving is the first expense β automatically. |
| 2 | The reserve comes first | A small reserve now, a big one over time. |
| 3 | Expensive debt is a fire | Put it out first; the method you will stick to is the best one. |
| 4 | Know where the money goes | Without the numbers there is no choice. |
| 5 | Postpone, but live | Postpone for a goal, not out of fear. |
| 6 | Separate money β separate accounts | Person β company β project. |
| 7 | Know how many weeks the money lasts | Check the runway every week. |
| 8 | Profit is not cash | A promise does not pay the bills. |
Your step in Pecuvo β for the whole module: five minutes every week:
- the balance;
- how many weeks the money lasts;
- the goals;
- the debts;
- budget against actuals.
This is the habit that turns the principles into behaviour.
Check yourself (3 questions per level)
- π§ 1. What do you put in the piggy bank first? 2. Why is it good to have money "just in case"? 3. If you have β¬10 and spend β¬2 a week, how many weeks will it last?
- π§ 1. Why can "buy now, pay later" be expensive? 2. What is the difference between the "avalanche" and the "snowball"? 3. What does the "marshmallow test" not prove?
- π§ 1. Why does automatic saving work better than intention? 2. How do you work out how long the money lasts (the runway)? 3. How can a profitable company go bankrupt?