Manage your budget and cashflow with the Bucket budgeting Strategy
Whether you're saving for a goal like a deposit for your first home, for a new car or holiday (yeah, that would be nice), consider using the Bucket budgeting strategy.
Here's how it works.
Bucket budgeting is simply a transparent and realistic approach to managing your funds – think the modern-day version of putting your cash into envelopes marked “bills”, “savings” and “everyday”.
Sticking to a budget, for many of us, can be a bit like following a diet. We reach a point where we know we need to rein in our eating - or in this case, our spending - to get the result we want, however, the more we place restrictions on ourselves, the more challenging it can be to sustain. Anyone who has successfully managed to reach and maintain a healthy weight has probably discovered that a long term, realistic approach is the key.
The same applies to your household budget.
We recommend you utilise the use of multiple transaction accounts and savings accounts to manage your saving and spending – think of these as your ‘buckets’. If your current bank doesn't offer fee free savings and transaction accounts, look around for one's that do...there's plenty out there!
Be realistic about what you can stick to, taking into account your bills, everyday expenses and goals for the future. This is where the buckets concept comes in handy.
Track your income and expenses with apps like the WCG Wealth Portal. It's has never been easier to set aside funds for different purposes and maintain control over your household finances. Instead of stuffing cash into envelopes, now you can simply use multiple transaction accounts and a high interest savings accounts to manage your saving and spending – think of these as your ‘buckets’.
The benefits of bucket budgeting include:
Motivation – watching your savings grow towards a particular goal can be a great motivator to help you avoid overspending in the short term and to keep you on track.
Visibility – understanding exactly how much you are spending in different areas can be helpful to make any changes necessary – for example identifying a need to cut back on eating out.
Security – ensuring there is always enough money set aside for the essentials and this money isn’t being spent on other discretionary items.
How to use the Bucket Budgeting strategy:
1. Make a list of your fixed expenses
To get started, make a list of all your expenses and allocate categories to them to establish what your buckets will be. This is a great exercise in understanding where your hard-earned money is going versus where you want it to go.
2. Separate your buckets (into different accounts)
Chat to us about your accounts, or you can easily open new accounts using your bank’s internet banking or mobile app (See earlier warning about fee free accounts!)
However, first consider:
the interest paid on savings accounts and how often you’re likely to withdraw from them (as this will impact things like bonus interest);
how many different accounts you need; and
how easily you can move funds around as needed.
By separating your buckets into different accounts, you get to keep better track than if you lump all the money together. These accounts can be held at the same bank, and we would recommend this as it's pretty easy to open up new accounts and label them with different names.
3. Calculate how much you can afford to put toward each bucket
After separate accounts are set up, decide how much is required in each bucket, and how much is left that you can afford to contribute monthly to the emergency and savings buckets.
This means working out how much your bills are, what your everyday expenses are (or what you are aiming for them to be) and then dividing up what is leftover.
You could be surprised at how much you actually spend on items such as takeaway food and this may be something you address in this process.
A very general guide could be:
30% of total income towards rent/mortgage repayments;
30% goes on bills including groceries;
20% for ‘splurge’ or other items that are just part of everyday life; and
20% for savings.
4. Set up automatic contributions
Each time you are paid, allocate your funds to the various accounts, or better yet, set up auto transfers. You may need to assess how much you are allocating – for example, you could find that you can save more by reducing some everyday expenses, or that you need more for everyday.
And remember – you can’t “borrow” from other buckets all the time. 5. Track your progress
Bucket budgeting is one way for you to track your spending and allocate your money wisely, while helping you set and stick to realistic short and long term goals. It also helps ensure you are prepared for any potential issues that might arise.
To make tracking your progress easier, check out the new WCG Wealth Portal.
A super easy-to-use app that brings together your income and expenditure, your investments and superannuation, to give you a real-time picture of your financial situation?
Read more about it here.
Here’s how the Bucket strategy works:
Bucket 1 – Bills Account: Regular and daily expenses
This is for regular bills including mortgage, rent, debts, groceries, transport, insurances, gym and petrol. This account should be linked to a debit card.
Bucket 2 - Everyday Account: Spending money
Use this bucket for the everyday fun stuff like socialising or treating yourself and others. This account should be linked to a debit card.
Bucket 3 – Emergency Account: Emergencies and safety money
This one is for the big or unexpected expenses that can catch you off guard, like home or car repairs, dental work or paying off unexpected debts. This account should earn interest and have no debit card, so you’re not tempted to spend. It is recommended to have approximately three months of expenses set aside for the unexpected.
Bucket 4 - Savings Account: Savings Goal
Use this to put aside money for your savings goals. This could be one single savings account for long term goals; for example, a holiday or house deposit. Alternatively, it might be more motivating to have separate accounts for particular goals – like “European holiday”, “new car”, “new shoes”.
Ideally this should be an account that earns interest and has no debit card.
Of course, just like any good budget – or diet! - how successful you are depends on how closely you stick with it. If you dip into the money set aside for your bills to buy a new jacket, you may quickly find yourself off track.