Organize Your Savings with the Bucketing Method

September 20, 2024 | By Jessica Goedtel, CFP®

The core of a solid financial plan is having cash set aside for things you might need in the next year or two.

I don’t mean cash under the mattress (please don’t) but money in an account you can easily access. High-yield savings accounts are perfect for this. You can put your money aside somewhere safe and earn some interest for your efforts.

But what happens when you need to tap into your funds? You’ve been saving for your goals, but now it’s just one big pile of money. While that sounds good, it can create confusion and stress when you need to withdraw funds.

The answer is simple: create separate accounts for each of your savings goals. This method is called “bucketing.” It’s easy to set up and will take your savings strategy to the next level.

Start with your high-yield savings account bank. See if they have bucketing available as a feature. This lets you create separate buckets within one savings account. If that’s not an option, you can open multiple accounts at the same bank. Most banks allow you to nickname your accounts or buckets. Name each account/bucket the goal AND your savings target, such as “New Car – $30k.”

From there, look at your accounts every few months and adjust if needed. Blew your travel budget out of the water on your summer vacation? No worries, tweak your target (and maybe your budget). You can have as many savings buckets as you want, but don’t make it too complex. You still need to keep track of each account.

Here’s my personal setup: I have separate accounts for emergencies, traveling, and taxes. If I have an emergency, I know where to pull the money from and how much to refill it. I contribute a monthly amount to my travel fund so it stays topped off throughout the year. Every month I put aside a percentage of my income for taxes to pay my quarterly estimated tax payments.

Bucketing works because it clearly delineates our money for our goals. It keeps us focused and organized. We feel good knowing that we’re actively working towards our goals and that we have money when we need it.

Not sure how much you should be saving? Schedule a complimentary call with me and learn how we can work together on savings and beyond.