I know that budgeting often gets a bad rep. Most people might admit they should have some sort of budget to manage their money, but don’t have the time to create one or track their spending. Or, some think that having a budget means you’re in financial trouble or you’re embarrassingly, on a spending diet!
I think creating a budget means you care about your finances. It means that you’re in control of your spending so you can achieve other important financial goals, like setting aside enough money for your vacation, or funding an emergency savings account.
With budgeting, you have to find a method that works best for you. If you’re looking for an easy, simple budget, you’ll likely appreciate the Bucket Budget method I learned about from a Money Magazine article years ago.
How does the Bucket Budget method work?
Here’s what you’ll need to do to get started:
- Set up three bank accounts (two checking and one savings).
- Figure out how much of every pay check you want to put towards savings and have that automatically sent to the savings account each paycheck.
- Send the rest of your paycheck to checking account number one. Pay all monthly fixed expenses (standard bills such as mortgage, utilities, internet, etc.) out of this account.
- Figure out your monthly surplus after paying fixed expenses and savings and divide by four (approximately 4 weeks per month). Set up a weekly transfer from checking account one to account two. This second account should be used for variable expenses such as groceries and entertainment.
Two Rules to Follow for the Bucket Budget
You must follow these two rules to make the bucket budget method work best:
- You can’t transfer more money over to account two until the next week (no cash advances for variable expenses). This forces you to live off the money you have available to you.
- You can’t use credit cards. Sorry, you can’t dig yourself out with a credit card. Remove your credit card from your wallet or purse if this becomes a challenge for you.
3 Bucket Budget Tips for Success
If you really want to make this easy budgeting method work [also see 30 family budget tips], consider these additional tips:
1. Use budgeting software
Consider using budgeting software or personal finance software to track the spending in each account. Maintaining a checkbook manually or trying to write down spending can add time and could be the reason you don’t like to budget. Some software, such as YNAB, will automatically import the transactions from your bank.
2. Keep an eye on problematic spending areas
If you tend to overspend in certain areas, i.e., dining out, clothes, entertainment, etc., use your budgeting software to set up more detailed subcategories for these areas so you can keep track of them a little bit closer. All other spending can stay in the parent category which is basically one per account.
3. Leverage your savings account as a barrier
It’s important to set up a separate account for savings to create a barrier between you and your money. We’ve tried keeping our savings in our personal checking account, but it was too easy to spend. We always found an excuse to use it. Having to think about transferring the money from a savings account helps you think twice about whether or not you really need to use it.
To recap, you set up three separate accounts (two checking and one savings) to manage your monthly spending. One account is for fixed expenses, the second for variable expenses, and the third account is for savings. Each week spend money out of the variable account for entertainment, groceries, etc. Pay bills from the fixed expense account and save with the savings account with an automatic transfer when your pay check is deposited.
What do you think about the bucket budget?