Managing your money properly is half art, half science. If you know where you want to go, you can create a roadmap and get there a lot sooner than you might think. One of the easiest budgetary tools you will ever see is a three bucket process to manage your money.
Before you start budgeting and saving for your future, you should have an exact idea of your income and outgoings. Complete a detailed budgetary analysis to understand exactly where your money goes each month and trim off any excess fat you can.
Put all your bills onto direct debit to ensure they are paid on time to avoid the fees and to take advantage of the lower bills offered by many providers of utilities. Once you have done this, figure out how much you will need each week in spending money and take the money from the bank on Friday each week. It’s important not to spend all your money and a good guide is to try and save 15% of your salary.
You’re first priority is to fill bucket one which is your rainy day bucket. Your rainy day bucket should contain about six months income so that if something happens, you can still pay the bills without having to panic immediately.
If you have no other savings or investments, fill up but this bucket first and get to 6 months income.
Once you have filled up bucket one, your next bucket is your retirement savings bucket. This bucket is also where you maximise your pension contributions so that you can enjoy a secure retirement. You should always pay as much as possible into your pension and take advantage of tax-free investment allowances such as ISA’s and other tax efficient investment vehicles.
Once you have done this, it’s time to move on to bucket 3. This is where you invest money for the long-term in stock markets, investment properties and other long-term income bearing assets.
This bucket also acts as a fund for new cars, remodelling your house and all the nice things in life.
When you have all three bucket is filled up, your financial situation is on a very secure footing. You will be able to withstand shocks that many people won’t and your future financial successes secured.
This is an incredibly simple yet very effective way to manage your money. Get your emergency money first, then sort out your pension and then invest for a long-term income in equity and property investments.
#1 by Trev at April 15th, 2010
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When you have all three bucket is filled up
#2 by James Dean at February 21st, 2011
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very inspiring.U are a good writer
#3 by James Hannagan at August 3rd, 2011
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If only more people listened to your advice on bucket #1. Before you can think about any home improvements, travel plans or a new car, you must have emergency money behind you for unexpected life events. People get caught out by this all the time.
In Australia, bucket #2 is redundant isn’t quite as important because we have compulsory employer contributions to workers’ superannuation schemes – on top of your income, employers pay 9% of your salary into a retirement investment fund.
But the principle remains the same – you must save for the hard times during the good times.
#4 by Tony at August 15th, 2011
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Interesting way of looking at things and maybe a little different to my approach which is much more haphazard and inefficient. I am going to have a re think about how I mange my money, glad I came across your post