What’s the bucket saving method?

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So what is this Bucket Savings Method I hear you ask….well, in short, it’s giving each ‘thing’ a bucket and throwing money into it. Think of all the different parts of your savings plans, eg/ mortgage overpayments, holidays, bills, tax if you’re self employed……each of these things has it’s own bucket and each month, you put into your buckets then amount you’ve predetermined they should get. Personally, I like the idea of the bucket method, even though, surprise! I don’t use actual buckets, and have graduated the method to actual bank accounts. Yep, we really do have about 6 different bank accounts, all nicknamed so I don’t get confused, and all included within online banking so I can easily move money into them, but also so I can see them growing, which I find really motivating.

THE ORIGINAL IDEA BEHIND THE BUCKET SYSTEM…

(which incidentally in case you’d not guessed was not in the slightest bit my idea) is that the first bucket that gets filled up is your emergency fund, and this should be filled up before any money goes into the other buckets. Hmmm……..I get this, I really do. I’m totally onboard with the reasons why you need an emergency fund. It makes sense. Three to six months living costs is the recommended target, meaning you could carry on if things took a turn for the worse.  It’s just that somewhere in me I’m itching to get on with the things I’ve actually set as my goals, paying the mortgage off and things like that, that I don’t want to out all our spare money into a rainy day fund. BUT…..in the name of being a newly responsible adult, I’ve adapted this method so that all the boxes get ticked, I get to have fun (I’m so rock’n’roll) watching our money grow, and watching our debts shrink.

So what I decided to do, is to divide the mortgage overpayment into 2 parts. Since alot of the overpayment money is going to be coming from extra earned income each month, I figure I’ll just try and earn more to cover my plans. I’d been planning to make one large overpayment each month to the mortgage account. I’ve checked with them and they’re fine with us overpaying 10% of the balance each year (I wish :)) so they’ll not be any penalties to pay and the payment comes off the balance straight away, therefore reducing our interest straight away. I HAD planned on matching our payment, so in effect doubling our mortgage payment, but I also know we need to have something for the rainy day I hope never arrives.

Right now, I’m trying to brain storm ways to be able to keep my plans of mortgage free in 4 years alive while building a nest egg, but this is a huge challenge, it’s a lot of extra money to find each month. The way I started this is here:

WORK OUT YOUR INCOMING MONEY

Sounds simple & a little obvious, but seriously, get a figure of everything you’ve got coming in, rather than a ball part figure. You’ve got to do this with real figures not made up ones, and unless you’ve only got one single source of income, do the maths.

MAKE LISTS

If like me, you’re a natural list maker, this next bit is scary and fun, sort of. You need to make a list of all your outgoings, and I did this in ‘batches’. List one is the household bills, so include your mortgage and all the utilities in this. Some people don’t include things like insurances and loans/credit cards etc…but I do, i just include everything to do with the house EXCEPT the food shopping, and then use this figure as the figure we need to live each month. There are ways to reduce some of your bills, see blog post here, so get this figure together and you’ll then immediately be able to see what the difference is between your incoming and outgoing money.

LIST TWO…

is now where I out the food shopping, now I’m trying really hard to bring our food shop down, I’ve saved a little, I want to save a lot more. Set a budget and stick to it. I take the cash out of the bank and leave my cards at home. This is the only way to ensure (for me) that I’m fully present whilst I’m in the supermarket. If I don’t do this, I’m easily tempted by things I know I don’t need.

FINALLY, LIST THREE…

is ‘wants’. The reality of this is that whilst I’ve got goals and plans, I also have a family and life goes on each day and I don’t want to miss out on doing everything just because i’m saving. So I set a little aside each month to do things like have a family meal or go out for a day out. Yes, I could use this extra money to out into savings & overpayments, but I want to have a little fun each month as well.

You’ll feel better once its done, you’l know where you are and where you need to be. I didn’t do this for years, I knew I should but I didn’t. I suppose I was concerned that the maths just wouldn’t add up, and the reality is that we’d been mismanaging our finances for such a long time, it was always going to be a bit scary. However, you can’t start to change things if you’re in the dark, so at some point, it’s best to get this done.

Now for the maths…..add up lists 1,2 & 3 and take away from your total income. Tada!! This is what you’ve got left each month. There’s a high chance it’s going to be depressing, mine was. My plan is to make extra income each month, take on extra work, cut down on food bills, reduce household bills, anything I can think of to increase the amount of money we can save each month.

MAKE MORE LISTS

These lists are the ones where you think about what your goals are, how much it’s going to cost to meet them, and how you’re going to get there. Try and find a happy medium here: I want to pay the mortgage off in 1 week  is not realistic (or maybe for you it is!) but make it challenging but achievable. I’ve settled on two goals right now. Firstly, I want to pay the mortgage off in 4 years, and secondly, I want to build a small nest egg in case fate has other plans for us. I’ve worked out with a mortgage overpayment calculator, how much I need to achieve this, and I’ve calculated 6  months living expenses and will save alongside goal one, so that hopefully we’ll simultaneously make our last mortgage payment and have a nice nest egg. What you’re looking for is a figure you need to make each month, then, you’ve got something to work with. Suddenly, the futures looking rosy!

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