Juggling expenses and sticking to a budget can be tricky, but being organised with your money can help make all the difference, especially when bills are due or when you’re saving up for your first home, new car or planning for that post COVID-19 holiday.
Fortunately, there’s another budgeting technique, called bucket budgeting, which has surged in popularity due to its simple and realistic approach.
What is bucket budgeting?
Bucket budgeting is basically a modern version of envelope budgeting. When your parents got paid in the old days, they would put their cash in different envelopes to cover different expenses. One envelope would be labelled RENT, another would be labelled GROCERIES and another might be labelled BILLS. Any money left over would then be stashed under the bed or in the freezer for a rainy day.
Although pretty basic, this method of budgeting helped your parents make sure they had enough money set aside to cover the essentials in a world without spreadsheets and online banking.
Now enter the digital age and envelope budgeting has become bucket budgeting – and instead of stashing cash in envelopes (not very secure), budgeting legends are stashing their cash in multiple savings accounts (more secure) with each account being dedicated to a different expense such as rent or groceries. Any money left over is then deposited into a high-interest savings account, to earn interest while it sits there.
Here’s how to bucket budget in 5 simple steps:
Step one: Pick your buckets.
Set buckets for your different spending and saving categories
The first step to becoming a budgeting ninja is deciding how many buckets you need and what they are.
Bills: which covers things like your rent or mortgage repayments, as well as utility bills and repaying any debts.
Every day: which could cover things like groceries, public transport and petrol etc.
Spend: anything from those shoes you’ve been eyeing off online to a new set of fancy wine glasses.
Savings: this bucket will cover any emergencies and also things you’re saving up for. It could be a post isolation family trip to Europe, your first house or a new set of wheels.
When setting up your buckets, start by making a list of all your expenses and fitting them into categories.
Step two: Fill your buckets.
Run through your budget and allocate your expenses
Once you’ve got your buckets and you've decided what expense goes into which, you now need to figure out how much of your salary to put in each bucket. A good rule of thumb is that rent and housing should take up to 30% of your total income, 30% should cover bills, debts and groceries, 20% should cover splurges and 20% should go towards your savings.
But remember, be realistic – once the money is gone from one of your buckets, you can’t borrow it from another. So you might have to wait until next fortnight, when your bucket’s full again before you buy those new sneakers.
A good way to do this is to go through your bank statements to get a true picture of how much each bucket will need. It’s easy to imagine we only buy one pizza a month until we’re shamed by three UberEats receipts in one weekend.
Step three: Get your buckets.
Before you rush to the office stationery cupboard and ‘borrow’ a pile of envelopes and start stashing your cash in them… remember envelope budgeting has had a digital makeover.
Open an Everyday Transaction Account for each bucket and a savings account/s for your savings and emergency buckets. And don’t forget to name your accounts in internet banking.
Consider opening Transaction Accounts which don’t charge any account-keeping or ATM fees, as these fees can really add up and eat away at your hard earned savings. Also, make sure you secure a savings account with a high-interest rate so you can reach your savings goal faster.
Step four: Get organised.
Once your accounts have been set up you now need to get your salary deposited into your buckets; you can do this 2 ways:
Have all your salary deposited into one of your buckets. Then log into online banking or your banking app and transfer your money to your different buckets.
Let your employer do all the hard work for you each month by asking them to deposit different amounts or percentages of your salary into your different accounts.
Step five: Label everything.
Make it easy to differentiate your cards
Unless you’re Rain Man, remembering which account is for which bucket can be difficult. Most banks let you change the name of your accounts online.
Enjoy being a better budgeter.
When all of your money is in one place, it’s harder to track your spending – and easier to overspend on life’s luxuries, leaving you living off baked beans until payday. But by breaking your spending down into different buckets you’ll have a better idea of what you’re really spending on essentials and where you might be able to rein it in. But remember bucket budgeting only works if you stick to the plan.
This article is prepared based on general information. It does not take into account individual financial objectives or needs and is not financial product advice.