When it comes to spending and saving, there are many different philosophies of thought for how much to allocate where. Broadly speaking, many people tend to break up their budgets into necessities / personal spending / savings.
However, “savings” can feel ambiguous, especially when you factor in the many ways that savings can be used (short-term emergencies! Big goals! Saving for retirement!). To help give clarity to those hard-earned dollars, the “Bucket Method” may be a helpful way to break down your spending goals.
The Bucket Method
The Bucket Method breaks down savings into 3 categories: short-term, medium-term, and long-term, with specific sub-categories. Each sub-category should link to a specific, clear goal (i.e., vacation).
Otherwise, the Bucket Method is what you make of it. There’s no maximum number of sub-categories (though I’d recommend no more than 10!). Whenever you deposit money into savings, you can then deposit money into each category.
You can track this anywhere, from an Excel/Google Sheets document to your favorite budgeting app. The location and exact method doesn’t matter as much as it is making sure your saved dollars have a job. This both helps with giving motivation to save while ensuring that you still spend!
The first category of the bucket is short-term. It usually indicates money that will be spent in the next 12 months, and the amount of money in this category is fairly volatile. Some examples of short-term bucket items can include:
Medium-term buckets are usually emptied more slowly: about every 1-3 years. Some examples of medium-term buckets may include:
- Lasik or other cosmetic surgeries
- A new car
- Home furnishings
Long-term buckets are rarely emptied; these are big-ticket items that are accumulated over years. Some examples may be:
- Buying a house
The best thing about buckets
Overall, buckets are helpful to ensure that there is a purpose behind your saving; you’re not just saving for saving’s sake. It also ensures that some of those hard-earned dollars get spent, as well–it helps some larger ticket items feel “already paid for” and can give a larger bandwidth of mental and emotional freedom. It is a great way to reap the benefits of your hard work!