THE BUCKET SYSTEM
The Bucket System
THE BUCKET SYSTEM The bucket system was designed to help people organize their finances in their pursuit of financial independence. It also is a great way to lead a financially balanced life. It’s simple, it’s effective and if you implement it and stick to the system, you will see positive results. Here’s how it works. You should have a plan for every penny of income that you earn. If you don’t, then your income mysteriously disappears week after week with little or no progress being made toward your financial goals. The bucket system provides a simple plan for every single penny you earn. There are 6 buckets: 1. FIA = Financial Independence Account 2. EDU = Education 3. NEC = Necessities 4. LTSS = Long Term Savings for Spending 5. GIVE = Charitable gifts & donations 6. PLAY = Money for fun and leisure A specific percentage of your income gets allocated to each of the buckets. The allocations are as follows: 1. FIA = 10% 2. EDU = 10% 3. NEC = 55% 4. LTSS = 10% 5. GIVE = 5% 6. PLAY = 10% So for example, if you take home $500 per week, the allocations would be as follows: 1. FIA = $50 2. EDU = $50 3. NEC = $275 4. LTSS = $50 5. GIVE = $25 6. PLAY = $50 This goes for any money that you receive. It could be your paycheck, or a tax refund, or cash in a birthday card. Every penny that you receive gets split up into the buckets.
© 2014 StrongForce, Inc
1
The Bucket System
The easiest way to manage this in real life is to open up 6 accounts with your bank. Most banks have something like an e-checking account where there is no minimum balance, no fees, no checks and you manage the account through their online or mobile applications. You can get a separate debit card for each of the accounts or utilize new technologies like mobile payment to make your purchases. For your FIA and LTSS accounts, open a savings account instead of a checking account to take advantage of interest. Here are the rules for each of the accounts: Financial Independence Account (FIA) – You must NEVER, NEVER spend the money that you put inside your FIA account. Any money inside the FIA account can only be used to purchase or acquire passive income streams to grow your money. Think of your FIA as a golden goose that lays golden eggs. The money you put into the FIA is the golden goose and the passive income you generate from the account is the golden eggs. If you spend the money inside the FIA, you are killing the goose and it will no longer bring you golden eggs (passive income). Instead, keep goose and let the golden eggs hatch and grow into other geese that can lay even more golden eggs. If you can, put money into your FIA account everyday, even if it is just a penny. In summary, the time to spend your FIA capital is NEVER! When you stop working, you get to spend the eggs but never the goose! Education (EDU) – You can use the EDU funds for your selfeducation, for example: books, seminars, coaching, online courses, events etc. Everyone needs to learn, especially in this changing world. Grow your comfort zone through learning and doing. If you are not growing, you are dying! Necessities (NEC) – You should use the funds inside your Necessities account to settle all your essential bills such as phone bills, electricity, clothing, eating, driving, travelling, hair etc. If you cannot survive on 55%, simplify your lifestyle. Instead of driving a car, perhaps you can take public transport, or drive a Honda instead of a BMW. Buy Converse jeans instead of Armani. There are people who cannot live on 55% NEC when they started the Bucket system but over time,
© 2014 StrongForce, Inc
2
The Bucket System
these same group of people are able to simplify their lives and live on 50% or less! Long Term Savings For Spending (LTSS) – The money inside LTSS can be used for major expenditure such as savings for your children’s education, buying a house for yourself, keeping aside contingency funds, or a planned large purchase. Give – You can use the money for donations to charities, or use it to help someone in need. Giving is important. If you choose to give 10%, take the extra 5% from your NEC and change the % allocated for NEC from 55% to 50%. Play – You are supposed to spend this money every month to pamper yourself. The key is to BLOW this Play money away every month so that you will feel good about having money and spending it! You should feel guilt-free when you spend this money every single month. Maybe you go for massages once every month, now you can use this money to really pamper yourself by going twice, thrice or as much as you want. Or you can try ordering champagne during dinner at a restaurant if you do not usually do. Or buy yourself a new gadget. Anything outrageous that you can do to pamper yourself and makes you feel really good. You are recommended to BLOW this money every month. However, if you need to save up for things such as short trips getaways that require a little more money, you can accumulate play money up to a few months, say a quarter, before you use them.
© 2014 StrongForce, Inc
3
THE BUCKET SYSTEM The bucket system was designed to help people organize their finances in their pursuit of financial independence. It also is a great way to lead a financially balanced life. It’s simple, it’s effective and if you implement it and stick to the system, you will see positive results. Here’s how it works. You should have a plan for every penny of income that you earn. If you don’t, then your income mysteriously disappears week after week with little or no progress being made toward your financial goals. The bucket system provides a simple plan for every single penny you earn. There are 6 buckets: 1. FIA = Financial Independence Account 2. EDU = Education 3. NEC = Necessities 4. LTSS = Long Term Savings for Spending 5. GIVE = Charitable gifts & donations 6. PLAY = Money for fun and leisure A specific percentage of your income gets allocated to each of the buckets. The allocations are as follows: 1. FIA = 10% 2. EDU = 10% 3. NEC = 55% 4. LTSS = 10% 5. GIVE = 5% 6. PLAY = 10% So for example, if you take home $500 per week, the allocations would be as follows: 1. FIA = $50 2. EDU = $50 3. NEC = $275 4. LTSS = $50 5. GIVE = $25 6. PLAY = $50 This goes for any money that you receive. It could be your paycheck, or a tax refund, or cash in a birthday card. Every penny that you receive gets split up into the buckets.
© 2014 StrongForce, Inc
1
The Bucket System
The easiest way to manage this in real life is to open up 6 accounts with your bank. Most banks have something like an e-checking account where there is no minimum balance, no fees, no checks and you manage the account through their online or mobile applications. You can get a separate debit card for each of the accounts or utilize new technologies like mobile payment to make your purchases. For your FIA and LTSS accounts, open a savings account instead of a checking account to take advantage of interest. Here are the rules for each of the accounts: Financial Independence Account (FIA) – You must NEVER, NEVER spend the money that you put inside your FIA account. Any money inside the FIA account can only be used to purchase or acquire passive income streams to grow your money. Think of your FIA as a golden goose that lays golden eggs. The money you put into the FIA is the golden goose and the passive income you generate from the account is the golden eggs. If you spend the money inside the FIA, you are killing the goose and it will no longer bring you golden eggs (passive income). Instead, keep goose and let the golden eggs hatch and grow into other geese that can lay even more golden eggs. If you can, put money into your FIA account everyday, even if it is just a penny. In summary, the time to spend your FIA capital is NEVER! When you stop working, you get to spend the eggs but never the goose! Education (EDU) – You can use the EDU funds for your selfeducation, for example: books, seminars, coaching, online courses, events etc. Everyone needs to learn, especially in this changing world. Grow your comfort zone through learning and doing. If you are not growing, you are dying! Necessities (NEC) – You should use the funds inside your Necessities account to settle all your essential bills such as phone bills, electricity, clothing, eating, driving, travelling, hair etc. If you cannot survive on 55%, simplify your lifestyle. Instead of driving a car, perhaps you can take public transport, or drive a Honda instead of a BMW. Buy Converse jeans instead of Armani. There are people who cannot live on 55% NEC when they started the Bucket system but over time,
© 2014 StrongForce, Inc
2
The Bucket System
these same group of people are able to simplify their lives and live on 50% or less! Long Term Savings For Spending (LTSS) – The money inside LTSS can be used for major expenditure such as savings for your children’s education, buying a house for yourself, keeping aside contingency funds, or a planned large purchase. Give – You can use the money for donations to charities, or use it to help someone in need. Giving is important. If you choose to give 10%, take the extra 5% from your NEC and change the % allocated for NEC from 55% to 50%. Play – You are supposed to spend this money every month to pamper yourself. The key is to BLOW this Play money away every month so that you will feel good about having money and spending it! You should feel guilt-free when you spend this money every single month. Maybe you go for massages once every month, now you can use this money to really pamper yourself by going twice, thrice or as much as you want. Or you can try ordering champagne during dinner at a restaurant if you do not usually do. Or buy yourself a new gadget. Anything outrageous that you can do to pamper yourself and makes you feel really good. You are recommended to BLOW this money every month. However, if you need to save up for things such as short trips getaways that require a little more money, you can accumulate play money up to a few months, say a quarter, before you use them.
© 2014 StrongForce, Inc
3
