Guest Post: The Bucket Method

bucket method

Good morning!  Today I’m handing the reins over to AnneMarie Balogh, who has shared here before about her initiation into investing.  She’s just started a new blog; be sure to check it out if you’d like to hear more from her!  ~Eric

 

 

Hi, all.

Thank you, Eric, for inviting me here to post again!

So yes, I shared here at the end of 2017 about how I started investing in the stock market using the tenets Eric describes in The Stock Market is For Everyone.  In August, I posted a follow-up.

Investing had a side effect for me that I hadn’t predicted: it fundamentally changed the way I interacted with money.

I have never been a wild spender or extravagant in any way, but the first 45 years of my life were governed by a paycheck-to-paycheck scarcity mentality.  I’ll be exploring that in more depth in the future on my own blog.  For now, I’ll just say that what this meant in my life was:

  • I had no savings of any kind.  Nothing for retirement, no emergency fund.  This wasn’t because I didn’t want to save – I did.  But…
  • …I never had enough money.  I’ve never made a big income, but some years it was higher than others.  No matter what I brought in, I never seemed to have enough money to get things done.  This led to…
  • …Debt.

You know how when you get your hair done, you immediately want to go and get your nails done too?  Or when you buy a new sofa, you notice the fades in the old carpet all the more?

Well, when I started investing, that’s what happened to me when it came to money.  These positions, these seeds of wealth I was planting, simply did not “go with” the overall mentality I had around money.

I needed to change my fundamental financial attitude.

Eric recommended I read the book Secrets of the Millionaire Mind by T. Harv Eker.  I read it, and will definitely need to read it again, as I wasn’t ready for all that it held.

But one part of the book stuck to me like glue.  I adopted my own version of it almost immediately, have tweaked it over the past year, and it’s changed my life in a way I’d have never imagined.

Eker advises that whenever you receive income – any income – you divide it between certain “accounts”.  He has a specific list, which I’ve altered to fit my purposes.  I call these accounts my “buckets”, and there are 10 of them:

  1. Day-To-Day:  This is where rent, groceries, laundry, utilities, and other regular expenses come out of.
  2. Giving: This is for gifts.  It’s very important to me to be able to give to those I love.  Using this bucket method, I was able to purchase great seats to “Beautiful” on Broadway as a gift to my mother; it felt so good!
  3. Debt: This fund is for paying off debt.
  4. Business/Education: This fund is specifically for expenses related to business and professional development.  My WordPress hosting comes out of this account.  So does my monthly Microsoft Office subscription.
  5. Travel: This is money set aside for travel – something I haven’t done in my life (I “could never afford it”).  I want to make up for lost time in this second half of my life.
  6. Financial Freedom: These funds go straight into my Roth IRA or one of my brokerage accounts, to be invested in the stock market and not to be touched until my old age.
  7. Entertainment: This is for restaurants, take-out food, movies, and other local recreation.  If I bring home a bottle of wine to have with dinner, I put it in this category too.
  8. Long-Term Savings For Spending: This is one of Harv Eker’s original ones.  It’s different from investing because these funds are meant to remain liquid and used in an extenuating circumstance.  I don’t own a vehicle myself, but for those who do, an unexpected car repair would fall into the category of situations when one would draw on this fund.
  9. Housing: This is money I am saving to upgrade my housing situation.
  10. Body: This fund is devoted to what I call “the body I occupy here on Earth”.  I place both “health” (medical) and “beauty” (eyebrows, etc.) into this category, because it makes sense for me.  It may not for you, and that’s OK.  In my opinion, these buckets are meant to be customized to who you are.

Every time I receive income, no matter how small, I do the following:

  • I deposit it into my checking account.
  • I divide the amount by 2.
  • I subtract a dollar from that result until I reach a multiple of 9.
  • I take that amount and deduct it from my checking account balance.  What is left in my checking account balance is “Day-To-Day”.
  • On a running sheet I keep (I use paper!) I divide the amount by 9 and add the resulting amount into each bucket.

As an example, I have a client from whom I receive payments of $120.  After halving it, I deduct $54 (the nearest multiple of 9) from checking and leave $66 in there for Day-To-Day.  I then divide 54 by 9 and get 6.  I add $6 to each account on my sheet.

That’s all there is to it!

This method has changed my life.  If you have any questions or want to talk to me about it, feel free to reach out to me.

Thanks again, Eric, for having me!  🙂

 

My book, The Stock Market is For Everyone, is a short guide for the beginning, inexperienced investor that is easy to understand and can be put into action immediately.

Click the image of the book at left to be taken to its Amazon page.  (Disclosure: As a participant in the Amazon Services LLC Associates Program, I earn a small commission on each sale generated through these links.)

 

 

 

 

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