Budgeting in buckets

With its recent rise in popularity, you have probably heard some talk about “buckets” – and may have wondered what they have to do with your finances.

Some banks and finance authors in particular have popularised the term, but it’s nothing new.

So-called “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.

Budgeting, simplified

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.

With the help of excel spreadsheets, online banking and mobile apps, it 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.

Here’s how to budget in buckets

1. Categorise your spending

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.

For example:

• Bills
• Everyday spending
• Savings – 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 “Margaret River holiday”, “new car”, “new shoes”.
• Emergencies – it is recommended to have approximately three months of expenses set aside for the unexpected.

2. Set up your buckets

Chat to us about your accounts, or you can easily open accounts through P&N Bank’s internet banking or mobile app. 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.

3. Now fill those 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. Manage your buckets

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.

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.

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.

For more budgeting information, chat to our friendly branch staff or call us on 13 25 77.