The Bucket System

Automate your finances using the bucket system and watch your financial stress and anxiety become something of the past. Imagine how that would make you feel so why not just make it happen?!

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Automate!

If you love money, investing and finance then most likely you want to spend time on your finances everyday but most people are not like that… After more than a decade working for different banks I know that it’s fair to say that most people want to spend their time on other things than taking care of their money.

You can choose to do absolutely nothing but then it is likely you will end up with nothing as you will spend it all as fast or even faster than it comes in….

You can choose to let someone else do it for you, like your bank. You will for sure pay (hefty) for their services but at least they will help you to make sure you take care of your money and savings.

You can use any of the above alternatives or a combination of them. However, you can also automate your finances so that you don’t have to spend a lot of time on it daily as it just happens for you, the way you want it to happen!

By taking the following steps once, you make sure they happen for you for the rest of your life. You will never have to do anything about it ever again (unless you want to). By following these simple steps, you will also make sure that you never end up in financial difficulties. Basically, you will always have money!

The easiest way to make this happen is to think and go about it the same way you do with your rent or mortgage payments. You have a direct debit in place so that you know you pay your mortgage every month. I guess you had this sorted once and then it has just been happening for you without you having to do anything or even think about it, right? That is the cool thing with automating things. Especially when we do it the way we want it to be! Imagine what would happen if you were to make manual payments at the end of every month, maybe there wouldn’t be enough money in the account! By having an automated setup where the money is transferred from your account to a dedicated account (mortgage payment), you know it will happen.

What I would love for you to do is to create your very own “bucket system” so that you have money going to different buckets, automatically, every month. It should go to the buckets you want it to go to. You basically decide what is a priority in your life and set up a system for it so that it happens automatically, just like you have done with your rent or mortgage.

Why you should care?

According to a recent GoBankingRates survey, 69% of Americans have less than $1,000 in savings, while 34% have no money in the bank whatsoever!

This is absolutely mind blowing and extremely sad at the same time. I do not wish for anyone to live under these circumstances and I know for a fact that by using the bucket system, you will never be part of the above statistics!

Actually, the participants we had five months ago starting off with our Wealth Sessions are no longer part of the above statistics thanks to this bucket system. The only thing they did was to create one of the buckets and then just letting it happen for them. Five months later, they belong to the 30% who have more than 1,000 USD in the bank and I am so happy that they decided to take control and make this small change.

You can probably think about a standing order or direct debit you have had for a very long time, maybe you even forgot about that gym membership (or never used it). This is sort of what I want to happen here as well. That it just becomes a part of your habits, a new positive and empowering habit. By following these simple steps in the bucket system, you are setting yourself up for a financial future free of stress, worry and anxiety as you will always have money. Doesn’t that sound like a great habit to create for you and your family? Well, you can easily make it happen today and if you know WHY you must create this, nothing can stop you from achieving this nor anything else you want in life.

The purpose of the bucket system is for you to have a clear picture of where your money is going. When you have decided the number of buckets and what you want to do with the money in those buckets, you could start thinking about the amounts you would like to transfer every month (more on that in the next section). Below I am just showing the “standard numbers” and you will have to decide your own as they are individual for each person’s bucket system!

This is the bucket system and what I think should go into the different buckets on a generic basis:

10% Financial Freedom – Money Machine (by far the most important one over the long term and if you want it fast, check out this FIRE section!)
10% Financial Security – a minimum of 6 – 12 months salary
10% Learning and Development – growth
10% Having Fun – we have to enjoy life!
10% Contribution – sharing is caring!
50% Necessities – all the basic stuff (this one we can normally work around depending no how fast we want to see results…)

Now let’s look at them one by one. Of course you can name your buckets whatever you want but there is a reason for why they are here, to serve you both in the long and the short run.

Financial Freedom (10%) – Your Money Machine

This is the bucket I am using to build a money machine over the long term. I want to put as much money into this bucket as possible because the impact will be significant over time. This is the one the members of the FIRE community focus on the most as they the effect of compounded returns.

This is money I never intend to touch. They shall be there and just grow and grow, I love the compounding effect and the longer you stay invested for, the greater the impact it has. This means that I personally am happy to take more risk to generate greater returns and hence invest in the stockmarket. A simple way to do that is to invest in an Exchange Traded Fund like the VTX. As you watch this grow over time, it will change the way you think about money as just knowing you have it will create a Financial Security and stability in your life. I would not be surprised if your interest in investing grows as well when you see the amount of money you have constantly growing.

Financial Security (10%) – a minimum of 6-12 months’ salary

You always want to know that you are ok if something unexpected were to happen. If your car breaks down, you lose your job or something else bad happens, you want to know that you have the funds to sort it out (without using credit cards).

By having this buffer at all times, you will have comfort in your life and you will not constantly be thinking about money in a negative way. Having this is a great way to start changing your blueprint towards money as you have an account that is consistently growing if you create this standing order. Just having a buffer like this will remove a lot of the financial stress I today see in many people.

Learning and Development (10%) – always be growing!

You should always be investing money in your own personal growth. If you don’t, who will? Our own and the future of our families depend on our capabilities and skills. If we are not constantly growing and learning, we are going backwards as the world is constantly changing!

If you have done your goal setting, you know what you want in life. Unless that is actually planned and scheduled, it will most likely not happen so make sure you schedule some learning into your agenda!

Earners are learners so never ever stop learning and growing as it will serve you all your life in different ways.

Having fun (10%) – you have to enjoy life!

You have to be able to enjoy yourself. Treat yourself or your family to a nice dinner or go see an event you want to see. By having this bucket, there is always room for enjoying life and if it is dedicated money, you will enjoy it more than if you just did something random.

I would recommend you to spend this money on experiences and ideally you do it with someone else. When you have a great experience, the emotions will last so much longer compared to if you buy a product and if you invite a friend to go with you, you will have a shared memory for life!!

Remember that this is dedicated money so now that you have a certain account and the money is there for you to enjoy, it is completely up to you how you spend it but make sure to have tons of fun!

Contribution (10%) – Sharing Is Caring!

Contributing to something is great and it produces an awesome feeling! You are showing and telling yourself that you have more than enough by sharing with others!

You can either give to the right causes that are close to your heart or you can actively take part. If you take part as well, you will get so much back emotionally. A combination of the two is what I would recommend as the experiences you get will most likely last you a lifetime and you will get a clear perspective on your own life and how you are living it.

By contributing, you are showing and feeling that you have plenty and this will for sure help you nurture a Millionaire Mindset!

Necessities (50%) – always make sure you cover the basics

We started off with the most important buckets which will help you create a mindset that will lead you to a reality of Financial Freedom and that is why they were first up.

Home, food, utilities, transportation, insurances etc. are of course fundamental and they will consume a big portion of your income. BUT by focusing on the really important areas first, I am hoping that you will work as much as you can with this bucket, tweaking it to the ”right” level so that more of your money can go towards the other buckets!

The quality of your life will depend on how you use those first buckets!

The steps to take to make it happen for you too

First you need to know where your money is going every month so that you know how much is left when all necessities (according to your definition) have been paid for. I would suggest you have a look at the below table and go through a few months’ worth of bank statements and then write down your numbers.

Now look at your numbers and let them sink in. You know your income and you now know your costs and expenditures for the last few months. The first thing you want to do is to calculate the difference between your income and your spending. Hopefully it is a positive number and then that’s the first amount you should make sure you always automate away into your bucket system. If it’s not, you need to take control right now before it gets even worse. The links at the end of this post might be able to help you in the right direction and I also recommend finding Side Hustles to increase your income until you are back in the positive.

Secondly I want you to spend some time with your numbers and realize where all the money is going every month and whether or not you are happy with how you are spending it. Maybe you will come to a realization about how much money you are actually “wasting” on something that is really not that important to you.

Remember that the money you are “wasting” could or maybe should instead be going towards making sure you have a great financial future ahead of you without any financial worries. What is past is past and we can’t do anything about it but what we can do is to make sure our financial future looks better than the past.

Your first easy action is to decide how much money to put on standing orders to your different “buckets” every month. The idea is that these standing orders should be set up just like your mortgage payments, i.e. happening immediately when your salary hits your account so that you know for sure it will happen. This is money for you and your family to have a financially great life.

The starting point would be to set up different savings accounts into which you have the standing orders going every month. You know where the money is and you have access. Unfortunately interest rates are very low on these so if you, like me, are intending to let your money work for you over a longer period of time, then maybe you also want to set up some investment accounts where you can invest in Exchange Traded Funds, just like Warren Buffett recommends!

Why not open these savings accounts right now and set up the standing orders into your bucket system so that you know they will happen for you every month? You can start out easy at first as later on when you get more comfortable you can easily change the amount you transfer every month. The key is to get this great habit started asap!

How you do this is completely up to you and should of course be based on your circumstances but the easy and first step would be savings accounts as you can get that done right now!

Just think about how much money you would have in 6 months? Or in twelve months? Just imagine how that would make you feel… Pretty damn good I would imagine and that is exactly how I want you to feel about money. By creating this simple habit once, you will never have to think about it again (if you don’t want to) but you will know in your heart that you always have money and that feeling alone is a great one to carry around!

If you are committed to changing your financial future, there is never going to be a better time than now so…

Log on to your online bank
Look at your income and your ”percentage buckets”
Set up 5 new accounts (at no cost of course!) and name them as you please (or use mine), your normal one for transactions will still be the basis for paying your necessities.
Crete monthly standing orders from your account (immediately after payday) to those accounts and use the percentages you have committed to!

By doing this, you will clearly see from which bucket you are ”stealing” money in case you need to transfer back to your necessities account to cover your expenditures…

How I personally use the bucket system

These are my numbers and the way I personally think about and use them. As we discussed before, you have to tailor your own bucket system in order to suit your personal circumstances.

A couple of comments on why I do what I do in my bucket system:

Necessities – this is money that I know I will need within the month, hence they should be in an account with no risk (transaction account). This is what everyone should do as you don’t want to risk any money you know you will need.
Having Fun – this is money that I normally use within 1-3 months so of course I want the money to be in the account for when I want to use them. Sometimes they are there for longer if I want to do a bigger trip or so. This money goes into my savings account as I want to separate them from my necessities account and to (hopefully) get a higher interest.
Contribution – is something I do every month and for that I use my regular transactions account as I have automated this to a direct debit. Every now and then I also give some larger donations and that is taken from one of my investment accounts where I have low risk government bonds or potentially credit (corporate). This is because I have been investing for more than two decades and am comfortable with taking some risk. In general I would recommend the money for contribution to go into a separate savings account.
Learning & Development – sometimes I buy some cheaper courses on sites like Udemy (very cheap) and then I will use the money immediately but the bigger part of this bucket is saved up to a few larger events which I attend each year. This year I am going to a five-day seminar in the US (currently living in Sweden) so a large part will go towards that event. Still, as I will not be using the money immediately every month, I am happy to take some but low risk so I am comfortable having this bucket in an investment account holding low risk government bonds or potentially credit (corporate). Again, in general I would recommend this bucket to be another normal savings account to make sure you always have the money available for learning and growing.
Financial Security – This is the best one within the bucket system because when you reach this level, you will never feel financial stress and anxiety again and if you do, just look at your account and you will see that you have money! In an ideal world, we won’t have to touch this money ever. In general and until one reaches the 12 months’ worth of salary in savings here, I would have the majority in a separate savings account. Once the 12 months’ worth of salary mark is hit I would invest in different assets to increase my return. I always want my money to work for me so I have bonds, credit and even some “defensive” stocks, most of which are bought through an Exchange Traded Fund (ETF) to get immediate diversification. The idea is of course that we will never have to touch this bucket because we are making more and more money. When you hit the 12 months’ mark, you might want to stop the transfer to this account and instead let it move on to your Financial Freedom account.
Financial Freedom – As I never really intend to touch this money and just put more and more in there, my investment horizon is very long (+15 years). As my investment horizon is long, I am willing to take more risk. My collection of assets (my portfolio) consists of: bonds, credit, stocks, properties and alternative investments. I have both direct investments (physical assets) and indirect ones via securities like Real Estate Investment Trusts (REITs). This bucket should be completely based on your investment and risk profile and should be put together in cooperation with a financial fiduciary. Before you start investing make sure you check out our Wealth Section as we have a lot of valuable content there. Also see our section The Money Language if you are unsure about some of this financial jargon.

Creating amazing and successful habits in line with the bucket system, is always a good thing to do and automating this for you might actually be one of the greatest habits your will ever have created.

Taking these steps and creating your own buckets are all part of your Wealth Pyramid but here is where you are creating the very foundation of it. This is where the building begins, one block at the time, just like any brick building.

Your life on your terms = financial freedom = freedom of choice!