Facebook Rss Twitter Youtube MSN

Why you need budget buckets

Jul 14, 2009 | | Comments (2)

Fire equipment
Creative Commons License photo credit: quaglia

Targeted accounts are the best thing to happen to savers since compound interest. But too few people use them, or understand how much easier they can make the budgeting process.

A targeted account is simply a savings account that you designate for a single purpose. You can set up different targeted accounts for specific goals, such as vacations and home improvements, as well as for recurring expenses such as car repairs, holiday spending, quarterly tax payments and insurance premiums.

These individual “buckets” of savings can help you track your progress to your goals and make sure you have the money you need, when you need it. When all your savings are jumbled together in one account, it’s too easy to overspend–you’ll think you have enough for that vacation to Disney World only to find out you just spent the money you’d been saving for Christmas.

The easiest (and least expensive) way to set up targeted accounts is usually through an online bank such as ING Direct, Emigrant Direct or FNBO Direct. Online banks allow you to set up multiple savings accounts for free, with no minimum balance requirements or account fees, plus you can name them anything you want.

For example, I named our main savings account at our online bank “Emergency Fund” and use that to store the cash we’d need to get through several months of unemployment.

But I also have accounts for “vacation” and “sabbatical.” The vacation fund gets a monthly infusion to cover any weekend trips as well as the longer family getaways we take each year. The sabbatical fund, which will pay for a much longer trip several years in the future, also gets regular contributions.

I use other savings buckets for taxes, car repairs, home repairs, insurance payments and the holidays.

Those buckets ensure that we’ll have the money, in advance, to have fun and follow our dreams.

For more, read:

Related Posts

  • Strategies for saving on a shoestring
    Dear Liz: I'm a mother of two children and I work part-time. On top of that I go to school full-time. Even though I receive financial aid, I still ha...
  • Monday’s need-to-know money news
    Today's top story: Four credit card strategies to get you through the holidays. Also in the news: Bank of America teams up with Khan Academy, how to ...
  • Move your money away from fee-hungry bank
    Dear Liz: My online savings account has been taken over by another bank, which started charging a fee to transfer funds to external accounts. I feel ...
  • How not to budget
    Jeff Yeager confessed in his latest book “The Cheapskate Next Door” that he doesn’t keep a budget. Neither do I, in the strictest sense. A budget is...

Categories : Liz's Blog

2 Comments

1

Mvelopes is a great on-line tool that will sub-account your checking and/or savings accounts into as many mvelopes (buckets) as you like. I love it.

2

I use a slightly different approach. I have my money in one account but I have a spreadsheet that breaks that balance down into buckets. That way it’s one transfer and only on account to keep track of.