Because I dislike keeping track of every penny, we employ a “bucket” technique to set aside 30% of our monthly income.
- When managing my money, I prefer “bucketing” to budgeting.
- My spouse and I split up our money into several accounts for various purposes.
- This technique has allowed us to save 30% of our monthly income and fully fund all of our retirement accounts.
The word “budget” annoys me to no end. It conjures me visions of needing to keep track of receipts and spreadsheet computations, neither of which I find delicious. To ConsolidationNow reach my financial goals, I recognize the need to track my spending and saving.
Since my husband and I came up with this new method, I prefer the term “bucketing” over “budgeting.”
Consequently, we split our paychecks across many different bank accounts, each with a distinct purpose. One of the important reasons this works for us is that it doesn’t require us to keep track of every dollar we spend.
It has helped my husband and I achieve various financial goals, including paying off our mortgage early and accumulating at least 30 percent of our yearly salary for early retirement…
Every year, we contribute to my husband’s TSP and our Roth IRAs using the money saved from our day jobs. Our 529 college savings plans and the option to pay big home bills in cash complete our savings plan participation. This year, we settled in full for the construction of a new garage and acquired a used car.
Is there a way to explain how we ended up here?
We devised our approach more than a decade ago when we bought our home and realized we had a cash flow problem. Our food and gas money would run out until our next payday if we paid all of our expenses. We felt like we were diving into our savings every time our mortgage payment came due in the middle of the month.
My spouse came up with the idea a few days later when looking over our mortgage statement. Escrow accounts are often used by financial institutions to keep client funds for paying homeowner’s insurance and taxes. After we signed up for an escrow account, the bank would put our monthly mortgage payment into it and then use that money to pay our insurance and tax bills when they were due.
We set up an escrow checking account to improve our cash flow. To determine how much escrow money we would need to deposit each month, we divided our yearly housing expenses by 12.
Our escrow account pays for gas, electric, water, internet, mobile phones, and our insurance policies, including health, dental, life, and automobile. Thanks to this account’s withdrawals, our housing, automobile, and child care expenditures are no longer a problem.
With our escrow account, we decided to deposit all of our monthly investment payments into it. These include contributions to our Roth IRA and 529 college savings accounts.
The money we have leftover after paying our expenses could be seen as a need rather than an investment.
Other financial accounts of ours
Keeping track of our monthly finances is made easier thanks to creating a “bucket” account.
We can buy gasoline, food, and other basics since we have a shared bank account. The money in this account will be used just to cover our daily costs for the time being.
I have a “fun money” bank account for my expenses. For example, I spend money on non-essentials like entertainment, clothes, and other non-necessary purchases.
Likewise, the restrictions that apply to my checking account also apply to my husband’s.
We maintain a little amount of money in a short-term savings account to pay for items like car maintenance, gifts, charitable contributions, and our children’s activities.
Consider a long-term savings account to save for long-term projects, such as home renovations or a vacation.
For budgeting purposes, we split our money into several different categories.
Every month, we figure out how much money we’ll need to pay our bills (escrow account) and how much we spend on food and other necessities (e.g., gas, groceries, etc.). It’s a (joint bank account). We then subtract that sum from our monthly take-home pay.
Afterward, we’ll account for our investments and divide the leftover assets among the various bucket accounts by our present monetary goals. At some point in this period, we may have to reassess our priorities or make some cuts to our spending.
Keeping an eye on our monthly costs and recalculating the amount of money we’ll need in escrow will help us ensure that everything goes according to plan. At one point, I worried that our escrow account might run out of money. However, if a problem emerges, we will be adequately funded.
As long as we use each account for its intended purpose, the bucketing method works well. Is it perfect? No. Is it true? However, bucketing has worked well for our company and has helped us meet our financial goals.