Our Guide to Savings Buckets: Organize Your Money for Success

Building a savings account as an all-in-one solution can feel puzzling. Those dollars likely have different purposes, so putting them in varying buckets may make more sense for you. And if you’re actively building your savings account, hitting smaller goals along the way can give you a psychological advantage in filling your buckets.

The WorkMoney team put together a guide on savings buckets, including how to organize them and use them to reach your goals.

What the Savings Bucket Method Is — and Why It Works

The savings bucket method is mentally dividing your savings account into smaller buckets. Each dollar in your savings account likely has a different goal, ranging from an emergency fund, to saving for a vacation, to upgrading to a new iPhone.

This gives savers the ability to prioritize what they are saving for and know exactly how far along they are in reaching their goals. The best part is that you don’t need to open multiple savings accounts – several banks allow you to label different funds for varying needs.

This method is an advantageous one for two reasons. First, it gives you control over what each dollar is for. Saving aimlessly may not give you the same excitement of saving to fill specific buckets. For example, let’s say you have a goal to save $15,000. That can seem overwhelming. Instead, you could have five $3,000 buckets for specific purposes. Dividing a large goal into smaller pieces can make it seem significantly more feasible.

How to Set Up Your Buckets

If this method speaks to you as something that can help you build your savings goals, here are a few ways to consider building your buckets:

• Step 1: List your goals (short- and long-term).

You likely have things you want to save for in the short term and long term. Be sure to write all of those out, and prioritize them in order. Remember to list them in order of needs (i.e. emergency fund) to wants (i.e. a vacation)

• Step 2: Choose 3–6 buckets to start (like “Emergency Fund,” “Vacation,” “Car Repairs”).

Don’t overwhelm yourself with too many buckets to start. Pick a few that make the most sense for you and your financial situation. They can include small and big goals, like: an emergency fund, a vacation, a down payment on a home, a new car, a new pair of shoes, and anything else you aspire to save for.

• Step 3: Set a savings target

For each bucket, know exactly how much you need. Think of it like climbing a mountain–you need to know where the mountain top is.

• Step 4: Automate regular transfers — even small ones count.

This is the key step. Once you know how much you’d like to have in each bucket, it’s vital to automate the funds to be deposited. Humans have a bad habit of spending money in our possession, so once you take that out of the equation, saving becomes much easier.

You can automate this in two ways: you can have your employer segment your pay into different accounts, or schedule money to be sent from your checking account to savings buckets. Either way, this step is a must to hit your goals.

• Step 5: Do regular check-ins and adjust as your priorities change.

Life changes, and so should your goals. For example, you may adjust your savings patterns if you need to repair your car, or need to move soon.

Common Buckets to Consider

If you’re stuck for ideas on what to save for, here are a few to consider, as well as ideas of how much you should aim to save:

• Emergency fund: The general rule of thumb is to save 3-6 months of living expenses. To find this number, take your necessary expenses each month, and multiply that number by 3 and 6. That is the range you should aim for.

• Car maintenance: This one can potentially be “baked” into the emergency fund. However, if you have upcoming car repairs or need to replace your car, it may be smart to start a separate bucket for that.

• Vacation or holiday fund: This belongs lower on the totem pole of savings buckets, but it’s worth saving for if you want to take a vacation, as long as your emergency fund is taken care of.

• Home repairs or upgrades: There are several ways to think about saving for home repairs. One rule of thumb is to save 1-4% of your home’s value each year.

• Medical or dental expenses: Medical debt continues to be a significant debt burden on millions of people. If you have expected medical expenses, saving for them could be a good idea.

Final Thoughts

Building a fully-funded savings account can feel nearly impossible. The savings bucket method can help the process feel more manageable, while giving you small victories along the way. And if you’re using a high-yield savings account, be sure you’re earning interest along the way.