The Bucketing Method: 7 Important Categories of Savings (2024)

FAQs

The Bucketing Method: 7 Important Categories of Savings? ›

We'll discuss seven common savings buckets below: emergency, rainy day, sinking, vacation, splurge, medical, and long-term. While not all of these categories will be applicable to everyone, understanding what's available may help you decide what could work best for your financial situation and goals.

Bucketing is a goal-oriented method in which you segment the money you are saving into separate accounts, each one earmarked for specific purposes. The system can help you to divide your savings for both short- and long-term goals.

For example, you might keep your emergency fund in one savings account, money for short-term goals in a second savings account and money you want to save for long-term goals in a third savings account. Decide how much you'll save in each account monthly.

Bucket 1: Funds for short-term goals, say within the next two years, like a wedding or nice vacation. Bucket 2: Money that you expect to need over the next three to 10 years, like a down payment on a home. Bucket 3: Savings you expect to tap no sooner than 10 years from now, say for retirement or tuition.

Bucket budgeting is when you split all your income into different sized 'buckets' depending on what your priorities are. You can track these buckets in separate bank accounts, in a spreadsheet, or a budgeting app or website.

What is Triple Bucket Cleaning? A triple bucket cleaning method consists of three buckets, one dedicated bucket for sanitation, a second bucket for clean rinsing, and a third bucket for dirty rinsing.

The seven percent savings rule provides a simple yet powerful guideline—save seven percent of your gross income before any taxes or other deductions come out of your paycheck. Saving at this level can help you make continuous progress towards your financial goals through the inevitable ups and downs of life.

The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals.

If you're saving up for different things, it can be smart to have more than one savings account. This is called the 'bucket' approach – have one account dedicated to your dream holiday, another for that shiny new car or your first home, and maybe even a separate one for emergencies.

The buckets are divided based on when you'll need the money: short-term, medium-term, and long-term. The short-term bucket has easily accessible money, the medium-term bucket has money in things that generate income, and the long-term bucket has money in things that grow over time.

What is the bucket method? ›

With the bucket approach, investors divide their retirement assets into separate buckets of assets based on periods of time. Those time horizons can be flexible as can be the number of buckets, but three is a common choice.

The bucket approach to retirement income is based on separating assets according to when they are going to be spent, creating a cash cushion for the early years of retirement, while maximizing the rest over a longer period of time.

The bucket approach to retirement income is based on separating assets according to when they are going to be spent, creating a cash cushion for the early years of retirement, while maximizing the rest over a longer period of time.

"Bucket" is a casual term that portfolio managers and investors frequently use to allude to a cluster of assets. For example, a 60/40 portfolio represents a bucket containing 60% of the overall assets that are stocks and another bucket that contains 40% of the assets that are strictly bonds.