Would You Like To Have Buckets Of Money? How To Save The RIGHT way!
Buckets of Money: A Better Saving Strategy
Are you a goal-setter? Or do you just go with the flow? Maybe you’re married, and one of you fits the former category while the other is in the latter bucket. Funny how opposites can attract sometimes.
One thing we all share, though, is that it takes planning to build wealth and then maintain it so it can last a lifetime and beyond. Strategies are needed to help us stay on track – that goes for savers, spenders, and all folks in between.
What’s the Bucket Approach?
One strategy you may have heard of lately is the bucketing method. Think back to when you were a kid: Did you have a piggy bank that you dropped coins into with the hope that it’d one day be so full you would have to crack it open and tally up your treasure? Well, that’s kind of what bucketing your cash as an adult is like.
Bucketing is simply segregating money into different accounts, each with its own purpose. For instance, you might have a near-term goal to fund an exciting European vacation, an intermediate goal to pay off your mortgage, and a stretch goal to buy a fancy car. Each of those wants, needs, and desires can have a singular account for you to track your progress more easily.
A Twist on Planning Ahead
You already do this through other types of accounts. You’re a bucketing wizard if you have a Roth IRA, Traditional IRA, and 401(k) for retirement, Health Savings Account (HSA) for medical savings, and a 529 college savings plan for your kids.
Bucketing works so well because it takes our behavioral quirks and flaws and sets them up to be an advantage. You see, all of us tend to get more serious and ambitious about accomplishing a mission when we have tangible proof that progress is being made. So, if you lump all your money together in a big pot, it’s hard to track how you’re doing for specific goals. But by setting up accounts designated for a particular purpose, more often than not, you can reach your target sooner with more joy along the way.
Making Your Money Work: Fun & Personalized Savings
I find bucketing works so well because it gives each dollar a purpose, especially for spending plans within, say, 10 years. In financial planning, we want you to embrace what is important to you money-wise and strive to achieve key milestones. And it’s easier than ever to do this. Most banks and brokerage firms allow you to hold multiple savings and investing accounts with no fees. You can tailor the name on the account from a lifeless number (I.e., X7912340234) to your meaningful goal (I.e., “Kitchen reno”).
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Here are some common buckets I have helped clients set up:
That’s a big list, right? But you do not need umpteen different accounts. Bucketing is simply a means to an end: It helps you reach your financial goals as well as mitigate risk. If you find that you have no issues by just keeping all your money in a single account, that’s fine too! Still, you should consider giving this approach a shot. It boils down to three key benefits I’ve witnessed with clients:
It’s important to recognize that a financial plan is not just about guardrails and delayed gratification. It is about maximizing happiness with money. I want you to savor spending money on what matters to you – no guilt, no shame, no regrets.
Next steps:
Give bucketing a try. I am sure you have some fun plans in the not-too-distant future. Set up an account and name it something quirky or funny – whatever brings you a smile or smirk. That’s the idea. It could work wonders for you, and you can do the same with other financial obligations and desires. A little experimentation and art can be just as useful as the science of financial planning.
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