So I’ve been playing around with different systems for budgeting, and the one that works best for me is to create buckets for my recurring expenses. The money I have left over, I kick over to the percentage method. Here’s how I do it:
Step 1: Create Buckets for Your Money
I am big into create different “buckets” for my main expenses. This is similar to the envelope system, but you do it digitally.
main expenses
This includes fixed, recurring expenses that don’t change from month to month, such as rent, utilities, cell phone, insurance.
variable: fun
Variable expenses are things that you normally spend money on but change slightly from month to month. I have two buckets for my variable spending. The first bucket is for socializing or stuff I do “outside,” such as eating out, entertainment, and fun.
variable: home
The second bucket is for stuff I use in the home, such as groceries, sundry household items, and shopping for stuff like clothes.
Why have two separate buckets for variable spending? Sounds complicated, right? I think the way I spend when I am going out is vastly different than when it’s stuff for when I’m just chilling at home or for myself. I also find that I have more control and discipline when it comes to groceries, while I might splurge when it comes to going out with friends. Don’t we all?
Step 2: Save Based on Percentages
When it comes to my short-term and long-term goals, I save based on percentages. So after my main budget has been accounted for and I have a little bit socked away in my baby or buffer emergency fund (I try to keep about a month of living expenses in my baby emergency fund), I move on to percentages. Here are my main short-term and long-term goals at the moment:
Emergency Fund
Retirement
FUN fund (vacation, buying a computer)
Investing
New Car Fund
I recently committed to saving a set amount each month for my retirement. Why? Because it’s important that I get to retire one day, and the only way I can ensure I accomplish this goal is to saving on the regular.
While my FUN fund can be broken down to specific goals, I personally find it easier to just create a main bucket and take money out when I need. For instance, I’m going on vacation next month and conveniently had enough socked away. This also shows how long it’s been since I’ve been on a real vacation, but that’s an entirely different story.
I probably can create another account for business-related spending, but I’m not there yet.
Would creating a budget based on buckets work for you? Why or why not?
