The four bucket personal finance system is a simple and practical alternative to personal budgeting. Think about this: how many times have you heard the advice that you need to get on a budget to start managing your money better? How many times have you attempted this strategy, kept it up for a couple weeks and found that budgeting just does not apply to the dynamics of real-life? This is why more people are choosing the four bucket personal finance approach as a practical alternative to living by a complicated budgeting system.
The Four Bucket Personal Finance Approach
Picture your personal finances as four buckets sitting in front of you. On each of these buckets, there is a label which tells you what the money in that bucket is going to be used for:
2. “Pay Yourself First”
That’s the four simple personal finance categories. Your objective is to put a predetermined amount into each bucket whenever you are paid. A recommended allocation percentage is not more than 70% of disposable income for expenses, and 10% or more for each of the three remaining buckets. However, you can change the allocations according to your personal convictions for managing money, but an amount is to be put into each bucket each time you receive a paycheck.
An example, if your monthly living expenses are $2,800 and you are paid $1,000 a week, using the recommended allocations, $700 are for expenses, and $100 to each of the remaining buckets. The “Pay Yourself First” capital will be used exclusively to create new wealth. The reserve amount is used to build an emergency fund and funds for special events such as investing in personal business or education, and savings towards a family vacation or the purchase of something which would just add more enjoyment to your life
Finally, the amount in your contributions bucket can be used to purchase gifts for your friends or family members or to give to charitable causes.
Keeping it Simple
As you can see, the four bucket personal finance system is a simple alternative to budgeting which can easily fit within the context of your real-life. Making the management of your personal finances simple and practical will make it much easier for you to stick with it until you get the results you want. So if you are worn out with trying to live your life according to a personal budgeting system, try the four bucket personal finance approach instead.