When to create a savings bucket

A bucket is my term for a savings account, used for either one-time or ongoing purchases.

It’s certainly not a standard financial term. I don’t see it used much on personal finance sites.

But the analogy should be clear enough. A bucket is something you fill up, and then use. So a bucket in a personal finance context is a savings account that you fill up and then use.

But how is that different from a budget category? Why have buckets at all? And, more importantly, when should you create a new bucket?

Here’s how to figure it out.

Buckets versus categories

Buckets are not the same as budget categories, though they can be related.

For example, I have both a transportation category and a transportation bucket.

What’s the difference? The budget category is for expenses that happen during the course of the month (gas, parking, buses, etc.) whereas my transportation bucket is for larger, less frequent purchases, like new tires, new brakes, or even a new (well, used) car.

In my budget, I allocate a certain amount of spending to transportation each month (this month it’s $100 if you’re curious/nosy, though it varies from month to month). $30 for gas here, $10 for parking there, all of these little expenses add up to about $100.

But as car owners know, any maintenance on a car is going to be way more. If I need to spend $100 on car stuff, that’s fine. If it’s $1,000, we have a problem.

And, repeat after me, we’re not going to use credit cards to pay for things that we haven’t saved up for.

So instead, I put $100 into a bucket each month. It takes a while for things to get rolling, but at this point, the next time I have a $1,000 expense for my car, I just pay it.

A bucket without a category (is okay too)

But not everything that you want to purchase has a corresponding bucket. I don’t know about you, but there are lots of things that I don’t buy every month.

For example, how often do you buy furniture? Unless your last name is Crate or Barrel, I don’t think you do it that often.

But you do buy furniture occasionally. I know there’s a couch that I’ve been eyeing, which would replace the last vestige of college-dorm-looking furniture I have in my home.

(It’s a futon, okay? Stop judging.)

Now, a couch isn’t an emergency (in case you forgot what an emergency is), and anything I’m likely to buy is going to be more expensive than I could reasonably account for in my budget.

In short, it’s a purchase that is beyond my impulse/discretionary spending limits, but still necessary. This is perfect for creating a bucket.

If I were to put some money away each month for this couch, I wouldn’t notice it, but soon enough I could throw that futon out the window. That will be so satisfying.

What is just too much to spend on impulse?

Here’s a good question for you: How much are you willing to spend on impulse?

What’s interesting is that this is very subject-dependent. Ever notice how $100 feels like it’s totally acceptable when it’s one thing, and nothing when it’s another? Groceries versus electronic equipment? Amazon Prime versus actual shipping costs?

Now, think about your spending habits: think of one thing, or a type of thing, that you typically want to buy, one that’s just more than you’d want to spend in a given month.

And yet, I bet this thing isn’t that expensive. I bet this thing or type of thing is only a hundred or few hundred dollars.

This is the “missing middle” of purchases. The big stuff, you may have thought about already, is accounted for. The small stuff, well, you can just go out and buy that.

But these middle-sized purchases? They are easily left behind. They may never bubble up to the surface, because they’re just a bit too much.

But what you’re thinking about right now, that middle-sized purchase, that never seems to bubble up? That’s when you want to create a bucket.

The big stuff, you may have thought about already, is accounted for. The small stuff, well, you can just go out and buy that. But these middle-sized purchases? That’s when you want to create a bucket.

Remember why

It’s easy to create a bucket. I wrote up how. (Remember that I make no compensation on recommendations.)

Remember, when you are able to buy what truly matters to you, decisions made with intention, your feelings of satisfaction will increase, and your feelings of anxiety will greatly diminish. What are you saving up for?

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