As you know, it is essential to save money to prepare for unexpected bills and circumstances. It will help if you organize your savings and expenditures. According to the CFPB, also known as the Consumer Financial Protection Bureau, people who save money maintain savings buckets as an effective saving method. You can have as many buckets as you’d like. Typically, the four most common savings buckets are:
- Regular Expenses – Recurring expenses such as quarterly, monthly, or annually bills
- Unexpected Expenses – Expenses that do not occur often but you will inevitably have to pay, such as a car or house maintenance
- Emergency Fund – For unforeseen circumstances such as a medical emergency or loss of a job
- Financial Goals – For achievement of life goals and dreams such as retiring early or going back to school
Regular ExpensesIt is much easier to cover your recurring monthly expenses when you have a good source of income, such as paying your utility bills, transportation expenses, or groceries. However, it is understandable that you cannot have any collective savings even after earning your paychecks.
This scenario can be frustrating when you cannot take out extra cash for a holiday trip, birthday celebration, or a little additional shopping. This is a clear sign that you are not saving enough every month. The budget that you create should always account for monthly expenses.
If you earn a good paycheck and can still pay for your regular expenses, something is wrong. Either your monthly expenses exceed your income, or you are spending too much on the extra stuff. Therefore, it is always best to account for your recurring expenses and save every month before spending on anything else.
Unexpected ExpensesThere are so many unexpected bills that can occur at any time. Therefore, you need to have separate savings account for all of the unexpected expenses. Out of the blue, your car can decide to break down at the end of the month. Perhaps it needs a new clutch or belt.
A car is necessary for your daily traveling needs, and you need to fix this issue immediately. One should have a separate savings bucket for these unforeseen events. It would help if you considered opening an “irregular expense fund” within your savings buckets that you can contribute to every month to recover such repair costs and other maintenance costs such as these.
Emergency FundThe most important of all savings is an emergency fund or emergency savings bucket. Losing a job or facing an unexpected medical expense can be a daunting experience as your list of monthly expenses is right in front of you. Now, you wonder if your savings is enough to support your current lifestyle unless you find any better opportunity.
However, if you have already set an emergency savings fund, you will have income set aside to support your loss for the time being. According to financial industry experts, a person’s savings should cover at least three months of their basic expenses.
Hence, consider creating an emergency savings bucket that will benefit you in an uncertain situation. You can even open a separate savings account with your bank in which you can make monthly payments to consider the account as your monthly liability.