how many use buckets?

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hoofaman
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Re: how many use buckets?

Post by hoofaman »

I use buckets to allocate savings:

I fill the buckets each year in this order:

- 401k pre-tax
- HSA
- 401k after-tax -> Roth
- Roth IRA
- I-Bonds
- Taxable Brokerage

Majority of our spending is just covered by our regular income, for those one off big purchases I just pull money from a taxable account as needed. However that usually isn't required
Last edited by hoofaman on Tue Nov 22, 2022 2:33 pm, edited 1 time in total.
MnD
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Re: how many use buckets?

Post by MnD »

I'm not sure.
We withdraw a fixed amount of income from investments monthly (adjusted annually per portfolio balance) plus a pension.
Anything unspent in a given month goes into the big ticket house/car/vacation account.
There's no rule for how much or how little in a given month.
It never goes back into investments. Most is in a 6-month 6-bill T-bill ladder.

It's just spending money that hasn't been spent yet (since spending isn't always smooth but lumpy sometimes).
But we certainly plan to spend it sooner or later.

If the new car supply chain ever unraveled for what we're interested in we'd be out SUV shopping.
If remodeling contractors were hungry for work with decent pricing we'd be shopping some house work.
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JakeyLee
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Re: how many use buckets?

Post by JakeyLee »

No buckets for me. Maybe a “barbell”. I keep all my assets allocated according to my AA (roughly 70-30). But I keep a decent pile of cash (at least two years) in t-bills and money market fund. So anything I need, whether it’s bills or an emergency, comes out that end of my barbell. But maybe I’m just describing a two buckets (?). So be it. It seems to work for me. Helps me smooth out the edges, and not pay attention to the market noise.
Golf maniac
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Re: how many use buckets?

Post by Golf maniac »

We have used the system for about 30 years. It was always take home pay and didn’t include things such as taxes, retirement savings, health insurance costs. It initially was paper and pencil but moved it to a spreadsheet. Probably have 20 or so categories now for day to day expenses like food, gas, electricity, entertainment, etc and then some longer term accounts like car repair/replacement, home repair, vacation, etc. We have evolved the budget over the years and made adjustments to various accounts as costs increased or decreased. If a longer term account has significant funds then we move it to a higher paying savings account and note where the excess funds are located. It has worked well for us and we update the budget and pay our credit card weekly just to ensure we remain on track during the month. But to be honest, we have everything pretty much on auto pilot so really only adjust accounts annually for inflation and any change in retirement income (pension, and DW SS). I am waiting until 70 for my SS.

It really depends on the individual and what works for them.
Jags4186
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Re: how many use buckets?

Post by Jags4186 »

I think bucketing leads you to spend more which can be a good thing if you're too tight. I tend to try to sweep as much money out of the checking account into investments so it feels tighter than it actually is. When I know a big expense is coming up (say a new car) I'll let the checking account swell. Right now I have about 2 months of expenses sitting in my checking account instead of roughly 1 month's worth.
BradJ
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Re: how many use buckets?

Post by BradJ »

David Jay wrote: Tue Nov 22, 2022 10:31 am You can do "buckets" in a spreadsheet without the necessity of separate accounts.

What is important is having a budget and using it to prioritize your financial goals.
I second this idea. I have one account that is an emergency fund, and I have a spreadsheet that breaks it down into pseudo buckets.
barberakb
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Re: how many use buckets?

Post by barberakb »

I use buckets but on the income side.

I like to have buckets that produce income like dividends , bonds, CD's, pension, rental property etc...
BayouBoy
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Re: how many use buckets?

Post by BayouBoy »

I never dedicated specific accounts to specific future purchases, but the bucket concept, or asset partitioning, seems like normal human behavior.

When it comes to cash flow, I have two "buckets:" an Ally Bank savings account, and a personal Checking account at a local brick-and-mortar bank (real bankers sit at desks, discount on safe-deposit box, convenient ATMs). My SS checks go directly to Checking, where I use the bank's bill-pay function to take care of most recurring expenses: utilities, credit cards, insurance premiums.

Payouts from my retirement 403(b) (RMD, annuity benefits, cash withdrawals) all go to Ally savings, from which account I transfer money to Checking as needed to supplement SS. My cost-of-living for any given period is simply SS income plus the sum of money transferred from Ally to Checking. The Ally account is my cash reservoir. Right now it = about two years of normal expenses above SS income. I'm happy with that amount of easily available cash.

If the Ally balance grows too large (e.g., after an RMD deposit) I transfer excess funds to a taxable Fidelity brokerage account, invested so as to balance investments in the 403(b).

Finally, as an emergency fund, a collection of maturing I-Bonds equal to about five years of normal expenses above SS income.
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LilyFleur
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Re: how many use buckets?

Post by LilyFleur »

bobblershead wrote: Tue Nov 22, 2022 1:47 pm
LilyFleur wrote: Tue Nov 22, 2022 1:35 pm Once a month (after my pension check hits my main checking account), I have an automatic transfer set up to move $s to separate checking accounts for property taxes, condo insurance, car insurance, credit cards, and HOAs (for example, I put $290 a month into my property taxes account). I pay those bills out of their own individual accounts (the accounts are free).

This way none of this creditors have my main checking account number.

I'm retired, and in 2020 I moved a portion of my 401k into a stable value fund so that if bonds and stocks are in a down market, I can withdraw from the stable value fund for a portion of my spending.

I guess you might call those "buckets." It works for me.
hi, yes i do something similar for those yearly bills, but virtually in software, the money is in one account, but i do pre save for the yearly bill. did you have an issue with a creditor taking from your account that warrants the separate accounts, or just like to be cautious?
I am cautious, and that way I don't spend the money on something else.
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Michael Patrick
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Re: how many use buckets?

Post by Michael Patrick »

I use separate money market account “buckets” for various purposes - property taxes, house maintenance, car repairs,etc. They are all at Capital One and all show up on a single screen. It helps me budget, I have regular monthly amounts that go into each one.

While the funds are earmarked for certain purposes, I’ll transfer between accounts or pull money for a different use if I need to. I make the rules, so I can break them… :D
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bobblershead
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Re: how many use buckets?

Post by bobblershead »

BayouBoy wrote: Tue Nov 22, 2022 7:10 pm I never dedicated specific accounts to specific future purchases, but the bucket concept, or asset partitioning, seems like normal human behavior.

When it comes to cash flow, I have two "buckets:" an Ally Bank savings account, and a personal Checking account at a local brick-and-mortar bank (real bankers sit at desks, discount on safe-deposit box, convenient ATMs). My SS checks go directly to Checking, where I use the bank's bill-pay function to take care of most recurring expenses: utilities, credit cards, insurance premiums.

Payouts from my retirement 403(b) (RMD, annuity benefits, cash withdrawals) all go to Ally savings, from which account I transfer money to Checking as needed to supplement SS. My cost-of-living for any given period is simply SS income plus the sum of money transferred from Ally to Checking. The Ally account is my cash reservoir. Right now it = about two years of normal expenses above SS income. I'm happy with that amount of easily available cash.

If the Ally balance grows too large (e.g., after an RMD deposit) I transfer excess funds to a taxable Fidelity brokerage account, invested so as to balance investments in the 403(b).

Finally, as an emergency fund, a collection of maturing I-Bonds equal to about five years of normal expenses above SS income.
5 years of i-bonds? i've recently became aware of them and was thinking of just keeping them for emergency fund too, i was considering getting more to use in case of bad market come retirement. what made you decide to use -bonds like this? looking back would you do it again? thanks.
nfs
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Re: how many use buckets?

Post by nfs »

We use buckets (still in accumulation phase). My husband and I use the same accounts. We have one account for fixed expenses, one for variable, and then others for specific things so we know without a doubt the $ is there when needed.

Right now we are building an investment property... there is one account with funds set aside to cover those expenses. When we were more newly married and money was tighter we had a clothing fund for kids, Christmas fund, vacation fund to ensure we would definitely have adequate funds for those purposes.

I think that especially with 2 people it can be easier to accidentally be planning to spend the same money twice if things aren't bucketed at least some.

As our accounts grow to have larger buffers with more flexibility I think the buckets are less critical... but we definitely still like them for certain things.
cognovimus
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Re: how many use buckets?

Post by cognovimus »

bobblershead wrote: Tue Nov 22, 2022 10:26 am just wondering how many of you use buckets to save for different things?

such as
- a new car fund
- a vacation fund
- an e-fund
- etc.
vs just putting all the funds in a single account and pull from it as needed?

Pre-retirement, we used something like this (I would call them "sub-savings" accounts at our primary bank) for decades to help save for new cars, vacations, 2 college educations, 2 weddings, etc. In some cases, the money was pulled into various investment vehicles like 529 accounts, brokerage accounts, etc, as we deemed appropriate. Along the way, we had to resist the siren calls of various brokers who saw that cash as a big fat commission in the making. It may not have been "optimal" because we ended up with more in cash accounts than absolutely necessary, but we managed well enough. Now I hear "sub savings accounts are touted" as a newfangled strategy by the guy who does the "I Will Teach You to Be Rich" podcast.

When you use the term "bucket," I think for many people it evokes retirement spending/withdrawal strategies which is a different animal and a different discussion.
Apathizer
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Re: how many use buckets?

Post by Apathizer »

jebmke wrote: Tue Nov 22, 2022 10:30 am I do not use buckets. If I need money, I sell something.
+1. I'm pretty frugal and don't waste money (to me) on things like expensive cars. If I need or want something and can reasonably afford it I do. There's no need to complicate finances with 'buckets'.
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Agent 99
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Re: how many use buckets?

Post by Agent 99 »

Apathizer wrote: Sat Nov 26, 2022 2:51 am
jebmke wrote: Tue Nov 22, 2022 10:30 am I do not use buckets. If I need money, I sell something.
+1. I'm pretty frugal and don't waste money (to me) on things like expensive cars. If I need or want something and can reasonably afford it I do. There's no need to complicate finances with 'buckets'.
+1. Or complicate life with more than one bucket list!
JayDee37
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Re: how many use buckets?

Post by JayDee37 »

I use buckets. The "bucketing" approach is how my brain is best able to wrap itself around the specifics of my financial situation. Plus, different financial goals have different time horizons, and this makes a bucket approach logical, IMO. Retirement, kids' college, planned large expenses (new car, large home maintenance expenses, special vacations), and unallocated emergency funds play very different roles in my financial life/plans, and will come due at different times which may or may not be knowable beforehand. I know that some people are able to combine all of this into a single overarching portfolio and feel that such an approach supports their planning, but for the way my brain works I prefer to think in buckets.

I have an emergency/sinking fund bucket, which has a time horizon of anywhere from tomorrow to infinity. Funds in this bucket are in an HYSA and I-bonds. Some of this bucket is allocated for specific things like "trip to Europe for my parents' 50th wedding anniversary" or "next car down payment," and some is the standard "3-6 months expenses EF".

I have a "kids' college funds" bucket, which is partly in 529 accounts and partly included in my taxable brokerage holdings. This has a time horizon of today (my oldest is in her first year of college) to 8 years from now.

And I have a "retirement" bucket, which is probably the most complex and has the most varied components (social security, pension, tIRA, Roth IRA, 457(b), taxable...). This has a time horizon of about 18-50 years.

Each of these time horizons suggests different allocations and investment vehicles, and when I look at how I am doing for a specific goal I can just look at the relevant bucket and see whether I am on track in terms of saving as well as investment performance. If I were to combine everything into a single portfolio it would not help me to see how things are progressing for the things that matter to me.
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bltn
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Re: how many use buckets?

Post by bltn »

bobblershead wrote: Tue Nov 22, 2022 1:27 pm
ETCS10 wrote: Tue Nov 22, 2022 12:37 pm When I first moved out on my own I used physical envelopes with cash for budgeting. That taught me to not only live when my means but helped with investing. Over time self discipline was engrained and the the envelopes morphed into investment buckets for larger ticket items like vacations, vehicles, housing, etc... I didn't have individual investments for each bucket category but used a spreadsheet to designate the funds in our taxable accounts. Since retiring the buckets categories have disappeared on the spreadsheet and we are learning to spend.
the envelopes method for spending then saving, we did this too, using real paper seems to make it more real, eventually the lesson was learned and moved away from it. but i was meaning buckets to save in, after the expenses are sorted.
When I first finished graduate school and started my job, I used the envelope method to segregate money for lumpy expenses. My envelopes were used to prepay expenses outside of routine daily expenses and savings. I had envelopes for car expenses to include maintenance and more importantly , to accumulate money for the next car purchase. There was an envelope for insurance premiums. There was an envelope for vacations. There was an envelope for home repairs. Three was an envelope for gifts. There were a couple of other categories I don t recall. This system allowed us to pay cash for everything but our house, with no borrowing. Using the same philosophy of taking your savings out of your paycheck before addressing expenses, I took our future expenses out of our paycheck before addressing current expenses.

As our savings and contingency funds grew, and my income increased, the benefit of our envelope system decreased. After 7-8 years, I stopped using the envelopes. I was trying to put aside about 40% of take home income and would simply take money out of that accumulation for lumpy expenses. But I found my paper envelopes to be very helpful (though not optimal since my envelope money earned no interest) early in my money management with my new wife and family.
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anon_investor
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Re: how many use buckets?

Post by anon_investor »

David Jay wrote: Tue Nov 22, 2022 10:31 am You can do "buckets" in a spreadsheet without the necessity of separate accounts.

What is important is having a budget and using it to prioritize your financial goals.
+1, this is what we do.
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JupiterJones
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Re: how many use buckets?

Post by JupiterJones »

anon_investor wrote: Sun Nov 27, 2022 9:14 am
David Jay wrote: Tue Nov 22, 2022 10:31 am You can do "buckets" in a spreadsheet without the necessity of separate accounts.

What is important is having a budget and using it to prioritize your financial goals.
+1, this is what we do.
Same here. After all, if you do have separate accounts at a bank, your bank is differentiating your money via mere accounting anyway. No reason why you can't just do the same yourself.

We don't really "budget" the day-to-day stuff. Our buckets are mainly for our emergency fund and for large, planned expenses like property tax, vacations, home repairs, car sinking funds, etc.
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rich126
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Re: how many use buckets?

Post by rich126 »

I think viewing money in different buckets/accounts can be very useful for planning. I have one account strictly for a house purchase and want to keep the money mostly (90%) invested in treasuries. I have a 401K where I currently work and will likely just leave it there after I retire and use it down the road for medical emergencies. Another brokerage has what I would call my core account where I will take out up to 4% SWR and finally have another account that will be used to bridge to social security.

Obviously you could do all this with a single brokerage or just on a spreadsheet.
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