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The Bucket Savings/Budgeting Plan

27 July 2009 2 Comments

A month ago, my air conditioner for my house broke.  What a pain, and when I got the repair bill, what an expense.  The worst part was that I was not really prepared for this expense at all.  It was a scenario that I wanted to avoid in the future.  My plan was to implement the “bucket” savings and/or budgeting method.

How It Works

This strategy involves having multiple “buckets” where you automatically transfer money from your main checking account into these buckets each month.  These buckets are pre-identified to pay for some purchase or expense.

For example, I have the following buckets setup:

  • House Maintenance (auto-transfer $25 into this bucket each month)
  • Car Maintenance (auto-transfer $25 into this bucket each month)
  • Savings for Big Purchase – i.e. television, new furniture, etc. (auto-transfer $25 into this bucket each month)
  • General Savings (auto-transfer $250 into this bucket each month)

With this setup, hopefully the next time something breaks on my car or home, I will have the money saved in the corresponding bucket to pay for it.  Since I have my bank account set for auto-draft into these buckets, they will automatically replenish the funds.

The great thing is that you can customize this plan to suit your needs perfectly.  Maybe you want a bucket for saving for a down payment.

What Are These Buckets Actually?

If you use ING Direct, you can create as many savings accounts as you want.  I create a savings account for each of the above “buckets”.  You can even give them a descriptive name so you know what the bucket is for.

I recommend signing up for ING Direct and getting started on this method of saving and budgeting right away.  I don’t know a better method for being prepared for big, unexpected expenses.  It is getting hit by and be unprepared these large expenses that can really shatter a monthly budget.