Bucketing is a smart way to manage your money without complicated budgets or spreadsheets. You set up multiple bank accounts called ‘buckets’ and use each one for a specific purpose, like bills, savings or entertainment.
Once your buckets are set up, it’s easier to see and control how you spend and save your money. This strategy is beneficial for anyone looking to save, reduce debt, control spending or achieve bigger financial goals. Bucketing can also help you save your money for larger but infrequent bills like car registration, school fees and energy bills.
It’s easy to start bucketing and saving when you know the exact steps involved in the process.
A good starting point is working out how you spend your money. An online expense tracker like the Spending tool, for instance, is excellent to help you see where your income goes. Next, group each category of your spending into a few themes. This could look like regular and daily expenses, emergency funds, splurge and savings. Then add up the amounts in each theme. These themes become your buckets. You can have as many buckets as you like, but here’s an example of how to group them:
Bucket 1 – Regular and daily expenses
This is for regular bills, rent, mortgage, debts, groceries, transport, school fees, insurance and holidays. This account should be linked to a debit card.
Bucket 2 – Spending or splurge money
Use this bucket for fun money to splurge on things like socialising or treating yourself and others. This account should be linked to a debit card. You can use card controls to take control of your spending.
Bucket 3 – Emergencies and safety money
This one is for the big or unexpected expenses that can catch you off guard, like home or car repairs, dental work or paying off debts. This account should earn interest and have no debit card, so you’re not tempted to spend.
Bucket 4 – Savings
Use the savings bucket to put aside money for things like travel, a new car or reducing debt. Ideally, this should be an account that earns interest and has no debit card.
To implement this financial strategy, you’ll need to get started with a basic transaction account with your bank. After you’ve opened one account, it’s easy to open or add extra savings or transaction accounts.
When you open your accounts, you can name each account to match its purpose. For example, you could name them ‘Spending bucket’, ‘Fun bucket’, ‘Safety bucket’ and ‘Savings bucket’.
This is a very important part of bucketing. The idea is that money from your income ‘pours’ into each bucket in certain amounts that you decide. Ideally, all your income or wages should go into the first account, and from there, you transfer money into each of your buckets.
As a guide, consider these percentages of your income for each account or bucket:
Now that you’ve worked out how much money goes into each of your accounts, you can automate transfers from your first account into the others. It’s a good idea to set up the transfers so they occur on the same day every month, soon after you get paid. This will help you avoid overspending on payday.
Now you’re ready to start enjoying the benefits of bucketing.
Source: NAB - Reproduced with permission of National Australia Bank (‘NAB’). This article was originally published at https://www.nab.com.au/personal/life-moments/manage-money/budget-saving/money-bucket
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