Work Hard To Spend It Before Kicking The Bucket
In our last podcast, I
kept referring to the concept of not budgeting but instead bucketing, when it
comes to your finance. For the last 3 years, I have lived by this concept and I
have seen a tremendous change in my finances. I have relieved myself of
financial stress and burden. Now below I will describe this concept to you and
how I go about it. This requires absolute discipline to start, but once you
kick it off and are comfortable you can sit back and enjoy the fruits of your
The concept of bucketing came from the numerous self-improvement financial books that I have read over the last couple years. I started off with the 80/10/10 rule, which if you are
not familiar with, click this link and read it before continuing because the foundation for the bucketing concept starts there.
Alright, now that you are back after reminding yourself of what the 80/10/10 rule is let’s begin.First, you need to spend a couple days looking at your spending and determining what items are a must. Open a spreadsheet and note those items there with their monetary value.
List those items as needs. These items will most likely be all your bills and
After you list your needs, within that same sheet list out things you constantly spend money on, just for fun. Don’t be ashamed of this spending, after all, that is why you work so hard. Note down the amount you spend on these “fun” items and don’t forget to include those dining out charges as well. This is what I call- leisure.
When you note down all the items for bills (needs) and leisure, take these monthly spending out of your monthly paycheck. When you calculate these items, what percentage of your paycheck is left? Write that number down because it is going to be crucial in setting up your bucket.
After going through the above exercise and understanding where your money is going, where do you think you can improve? Most of you will probably say savings by not dining out as much and decreasing your bills! After all who doesn’t like /want to save more and then pay fewer bills. But if you really look at your spending you will notice you spend a good deal on this item “dining out.” Which is normal because a lot of us do that. But if you’re going to follow this concept of bucketing and not budgeting you will have to refrain from a lot of leisure activities to grow that bucket at first.
To begin you will need three different banks, look for banks with no fees for checking or savings and that also provide a high interest for your accounts. The reason for the three different banks is because it usually takes a couple days to transfer between banks, hoping with this buffer any in pulse you have to spend and dip into other accounts will be gone by then. What I am going to describe below can be done with one bank if you are disciplined and trust yourself with money.
The first bank account
will be for your needs. To make sure that I do not go into the negatives when an unexpected bill happens, I have a standard set amount on top of my initial bills that stays in the account. So, when I get a ticket or something unexpected happens, I am not scrambling to figure out what to do. When this money is not used from month to month you will gain interest on it. This is why having a high-interest account is important. If you are in a position where you can set all your bills to automate, make sure to do so. In most cases, you also save money for doing this because a lot of places decrease the interest rate. For my bills, I also make sure there is an extra buffer of money for every bill. Again, if you are fortunate enough to do this, it helps alleviate a lot of financial stress in the future. Over the course of setting this system up, pay attention to your bill threshold. Base off the 80/10/ 10 rule, where 80 percent of your money should go towards bills and necessities, eventually you will want to decrease from 80 to as low as possible.
One of the banks should
have accounted for your leisure spending. This is where the other 10 percent of your paycheck will automatically go. Before spending on anything fun or not a
need, check this account to make sure you can afford it. This will allow you not to dip into your other accounts. Again, discipline is key in all of this.
With this option, you limit yourself but you don’t overspend. After a while, you realize your leisure account will grow and you wouldn’t have to worry and limit
yourself anymore. The hardest part of all of this is to start, once you get the ball rolling it become a part of your everyday life.
The last bank will be
dedicated to savings. This account is utilized when you have an emergency or you can split your savings into multiple avenues and have vacation or
investment opportunities. You want to grow your hard earn cash for the future. This 10 percent is supposed to be there when you need it the most.
The concept of bucketing has help me in doing great things in the last couple of years. I have traveled all over without worrying about my bills or the money I will be spending when I go somewhere. This concept is all about giving yourself the opportunity to be stress-free and to be financially free to enjoy yourself.