The savings buckets
I’ve always known that saving money was important. Actually implementing a savings plan and learning to stick to it has taken some time though.
Part of the problem was that I had a narrow view of what savings meant. I thought that it meant money that you tucked away for some future date that would never come. It’s hard to get motivated to regularly send money away if you basically believe that you’ll never see it again. That’s sort of like spending, only without getting anything in return. So it helped when I expanded my definition of savings.
I now look at saving as filling up various buckets for future spending that WILL take place. (I’ve probably actually gone too far in the other direction by making my definition of savings very broad, but it works for me.) In my case I lump investments in with savings, even though I know that there is a difference between the two. Here are the buckets that I “save money” for, along with a short explanation of them:
1. Retirement – I hope to “retire” early, so I’m hyper-focused on socking away money toward retirement right now. This is especially true because I’ve only recently begun doing so regularly.
2. Emergencies – My definition of an emergency involves blood or involuntary loss of employment. That’s it. I pay a disability insurance premium for this each month too.
3. Repairs & replacements – This bucket is probably more of what most people consider an “emergency”. I consider them inevitabilities though. Car repairs, appliance breakdowns, furniture replacement, and home improvements fall into this category.
4. Mortgage – This is where my husband and I are gathering up money for the future payoff of our mortgage.
5. Escrow – We set aside money each month to use to pay our property taxes and homeowner’s insurance instead of having our mortgage company escrow the funds.
6. Non-retirement investments – I’m not really sure why I separate this out mentally, since basically all of my investments will (hopefully) help fund retirement. But these are more speculative things — like tax liens and individual stocks.
7. Education – Unfortunately this is a rather small fund. But I do send a little bit each month to an account that I’ll use to help my son fund college.
8. Wants – This is almost exclusively for travel, since that’s pretty much what I most enjoy doing.
I don’t save for Christmas gifts, mainly because I tend to buy gifts all year around, so I don’t need a bucket to collect money for that. I have these buckets “organized” kind of loosely. A few accounts are actually named for their intended purpose (travel, appliances, mortgage, escrow) but most of the rest are more mental divisions. (Except for IRAs and 401(k) accounts.) It works for me. Sometimes it feels like I have no money left when I get done dumping money into the various buckets, but then I realize that I DO have money for exactly what I want to do, when I want to do it. And that’s the point of savings.
May 16th, 2008 at 9:16 am
I do the same thing (with slightly different categories of course). It really helps with saving focus and peace of mind.
May 16th, 2008 at 2:16 pm
I also do the same thing. Here’s how our buckets compare:
1. Retirement – Like yours.
2. Emergencies – I just have a health bucket. I work for a state agency, so I don’t actually save for involuntary loss of employment. I also have health and disability insurance.
3. Repairs & replacements – I split this up into multiple buckets. I have an auto maintenance bucket, and auto replacement bucket, a housing repair bucket (which includes appliances as well as plumbing, roofing, etc.), and a home improvement bucket.
4. Mortgage – I don’t have one of these. I figure I can use my retirement or wants bucket for this later if I want to.
5. Escrow – I still let my lender do this.
6. Non-retirement investments – Nope.
7. Education – Nope (no child).
8. Wants – Mine for anything that’s so expensive I have to save up for it. Mine is also mostly for travel but sometimes furniture or electronics.
Two things might be different. 1) I sometimes borrow from one bucket to pay for something when I run out of money in another bucket. When I find that one bucket is going negative too often, I re-do my budget to get it back on track. 2) I keep my retirement money in various retirement accounts, and my other money is split between a credit union savings account, an online savings account, a CD, and a couple of old I-bonds. I don’t have a notion that, for example, the car-replacement money is in the CD. I just keep track of the total and bucket subtotals separately.
I really like knowing it’s okay to spend a fair amount of money for various things without making it impossible to spend on other things later. And I like adding some to each bucket with each paycheck, regardless of how much is already there.
It always surprises me, though, when I realize I should make a change (besides after a salary change). I recently had to increase the car maintenance bucket (even before gas prices rose), and I recently added the health bucket (really so that I could have a health emergency bucket) and the house renovation bucket (because I’m getting really jealous of people with dishwashers and clothes dryers and shaded back porches).
May 16th, 2008 at 9:05 pm
I have a hard time saving for anything that won’t be spent in six months (savings or travel). Perhaps I’ll start thinking in “bucket” terms to help me out.