When you think about how to spend your money what do you think about? Other than the necessities like food and your rent/mortgage and utilities, where can you put your money so that it will leave you feeling satisfied? Should it be used to buy things that you like, or to go somewhere and experience something new, or is it to save and make you feel safe in case you need to use it later on for an emergency? This is something that I think about a lot and it really makes me wonder what I should do with the money we earn. I like to think of four main categories or “buckets” you can group spending money into. Think of it like having a big container of water and pouring it into four separate smaller buckets. But, like the water, you should not fill up the buckets with more than was in the original container (aka you should not spend more than you make and go into debt). The four “buckets” that we put our money “in” are:
They are listed in no particular order of importance or priority.
I like to think of the first bucket, security, as saving money now so that later you can have more. This includes everything from just a pure savings account, to retirement accounts, investments, and insurance. Putting away a stash of cash in a jar or putting it in an IRA so that it can earn interest and become more when you are older gives you a sense of financial security and comfort that later on down the road you will have enough money to add to the other buckets. Insurance, which I include in this category, is a way to ensure that should an accident occur, you aren’t going to be out tens or hundreds of thousands of dollars for some extremely unfortunate coincidence.
The next bucket, convenience, is all about spending money on things that save you time or make doing a certain task easier. To us, time is precious, especially time with my family and friends and we want to maximize that time doing things we enjoy instead of tasks that we don’t. I also don’t want to put back breaking effort into something that I could have spent a quarter of the time on if I had the right tool. “Work smarter not harder” as the saying goes. If you’ve ever tried to remove a tree stump by hand with a shovel and mattock and then see someone use a stump grinder you know what I’m talking about. Some might call not wanting to do labor laziness but I’m not talking about hiring a personal butler or maid to do every menial chore. I think of convenience largely as spending money on appliances and tools that can do a certain job quicker and with less effort. For example, getting a nice dishwashing machine so you don’t have to clean them by hand. Or even spending a few more dollars on the nicer model instead of the cheap $100 one that leaves the dishes wet when they come out or leaves water spots on everything. Convenience can also include paying someone like a contractor to landscape your yard for you or getting a tax professional to do your taxes or just paying anyone for a service that you aren’t an expert in/feel extremely uncomfortable doing so that you don’t have to take all the time and effort to learn how to do it yourself.
Third is giving. It can be easy to be selfish about your money that you work hard for but it really takes discipline to set aside some every month to give to those less fortunate than you. One amazing thing about giving is that the more you do it, the easier it becomes and the more fulfillment you get out of knowing that you can help others who are struggling or were born into a less fortunate situation. Many Christians believe in a tithe, or giving 10% of your income to the church, and this a great way to begin the practice of helping others. Giving does not just have to be handing your money to someone or an organization but can be done through donating your time, food to food drives, or giving toys and much needed hygiene or school supplies to kids in poorer countries. Giving needs to become as much of a habit as buying groceries in your financial planning.
Finally the last bucket, hobbies, is all about having fun with your money and spending it on things you enjoy. This can be material things or traveling or spending money on an activity that you have been into lately. Once you are debt free, you can afford to spend more on things that make you happy. It feels good to be able to get that new phone, or go on that vacation you have really wanted to go on. If you really enjoy cooking and want to buy some fancy foods and experiment in the kitchen, that is all about what this category is for. Every person has their hobbies they enjoy and they should allot some money towards those as long as it is well balanced with all of the other buckets.
These four “buckets” are just one of many ways to think about how to group all of the things you buy into categories and to make sure that you are contributing at least a little bit to every bucket. Maybe you would categorize your buckets differently and that’s okay. This is just what works for us and has helped us succeed on our financial journey.
If you have any questions for me, let Jordan know and she’ll pass them along so I can get them answered.