Since “money doesn’t grow on trees”, we all need to develop a specific plan for accumulating the funds needed to live the lifestyle we choose. How and where we save for each goal needs to be appropriate based on the timeline. For example, we need to be more conservative with money we need short-term access to such as an emergency fund or upcoming purchases. Conversely, we can invest more aggressively for long-term goals such as retirement or a dream trip that is five plus years away. Here is a proven system to help you succeed.
The easiest and best method I have found to manage cash flow and successfully achieve any (realistic) type of financial goal is the “Three Buckets” money system. Bucket #1 is dedicated to the funds we need to pay our monthly living expenses. Bucket #2 is for our future goals such saving for retirement. Other examples would be saving for a car, house down payment, vacations and college costs. Bucket #1 and #2 require us to calculate how much we need to fund to achieve each goal, either with a lump sum or with periodic contributions. Automatic contributions from our paycheck or checking account can greatly improve the odds succeeding.
After calculating what we need for Buckets #1 and #2, we can determine how much monthly income is leftover to fund Bucket #3. Bucket #3 is everyone’s favorite because it is the “discretionary” bucket. There is no accountability for spending this money. We can spend it on whatever we want. A couple can spend their Bucket #3 funds together or the funds can be split up between them so each can spend their half on whatever they choose.
The beauty of the three-bucket approach is it is a simple, effective system for achieving goals plus it provides us with a guilt-free monthly “allowance” to enjoy our lives along the way. We’re here to assist you with the calculations and other details if you’d like to give the three-bucket system a try!