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The (Crazy Simple) “Bucket” Budget

by J. Money on Wednesday, June 29, 2011

Simple BudgetI came across this SUPER simple budget the other day in Money Mag, and I’m not gonna lie – it’s kinda sexy! Especially if you’re just starting out and looking for a beginner’s budget.

I haven’t seen a system this simple in quite some time, or at least one I thought was good enough to share. If you haven’t found anything that works for you yet, this may be a good place to start!

All it requires is a few accounts, and a visit to your HR department to set up direct deposits (or if you don’t have one or work solo, you can just automate it yourself by going online through your bank.  Or just keeping it manual each month, though that kinda takes away from the simplicity, haha…). Here’s what Money Mag, and now J$, recommends:

The Bucket Budget:

  1. Savings Account — Throw all the money you want to save every paycheck right into this bad boy.  We start here because it’s all about paying YOU first before paying everyone else. One of the fundamental rules of personal finance (and one of the hardest to stick by! Haha…)
  2. Checking Account #1 — This is for all your daily expenses, and everything you need to pretty much survive (housing, food, utilities, etc etc.)  This will be the largest account for most people, and the one you’ll have to keep your eye on the most to make sure you’re not going over (and if you do, you dip into the next account)
  3. Checking Account #2 — The place for all leftovers!  If you should be so lucky to have them, haha… this is where all the money goes after your set savings % (or dollar amount), and your regular daily expenses.  Consider this as your “back up” account before having to hit up your savings.  You can do whatever you want with this money.

And that’s it!  Crazy simple, right?  Now obviously when you get THAT slimmed down there’s a lot of things you’re gonna have to watch out for to make sure it’s a good fit for you and all that, BUT it’s certainly a great starting point.

Just keep in mind that you’ll still need to *know* how much to put in, and where. It’s not a magical budget – It’s not gonna track your money for you and then tell you what % to divvy everything up into ;) If you don’t have an estimate of where all your money’s going, or how much your daily expenses come out to, take an hour or so and go back through your last 3 months worth of statements to calculate some averages. Once you have some good numbers in mind, pad it by $100 or two and then jump in and get started!

The cool thing about budgets or any other systems in life, really, is that you can run with one and then TWEAK IT as you go!  Nothing’s ever permanent or set in their ways.  YOU determine what’s best for you and you get out there and improve on ‘em.  Whether it’s this budget or another one out there though, you better be staying on top of it and making your friend J. Money happy! :)

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{ 33 comments… read them below or add one }

1 Money Beagle June 29, 2011 at 7:48 am

Definitely a great way to get started. I think that, for many, once this took hold and was ‘automatic’, you could start expanding into other areas like an IRA or higher yield savings account, but it’s all about baby steps!

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2 No Debt MBA June 29, 2011 at 7:56 am

Multiple checking accounts are not for me, but I could see how it could be a really effective tool for someone else to literally divide their money.

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3 Colleen June 29, 2011 at 8:32 am

This is sort of what I do. I bank at President’s Choice in Canada and have a checking account, and 2 savings accounts. The savings accounts cannot be accessed by debit and need 24 hours to transfer money (if I want money, i can’t get it until tomorrow). Savings Account number 2 is never touched – it is for long term savings (it is how I bought my car with cash last year). It gets so much a month and stays there forever. Whenever myself or my husband gets paid, I put the requisite amount in savings #2. Then I look and see what bills need to be paid before the next pay day (generally we get paid on separate weeks), budget for gas, groceries, and plans, etc. and then add $100 for emergencies. All other money gets transferred into Savings #1. This is the account I use to pay for things that come up throughout the year without budgeting specific amounts for them – car insurance, property taxes, bar fees, etc. I keep this account between $1000 and $1500. If for some reason it gets higher, the excess goes into Savings #2. It gets depleted of course, my car insurance was just $1000 – so then I tighten my belt a little and build it up faster. It means I don’t have to figure out every month I need to save $84 for car insurance. And since I can’t access it with debit and can’t get the money that day, it stays safe from impulse spending. I didn’t start out with two savings accounts, but my bank started a second kind with higher interest, and I just never closed my first account. It has a lower interest rate, but does not have any minimum balance needed, so the fluctuations don’t hurt my interest. This really works for me.

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4 Melissa June 29, 2011 at 8:49 am

This is really similar to my budgeting strategy in university, except without the savings component (because what was I saving for if not tuition?). I kept enough for rent and tuition in one checking account. In a “saving” account I had all my money for everything else, and on the first of the month, I’d transfer $200 into another chequing account (yep, that poor in university) and that would have to last me until the end of the month. Super simple, but it worked. Though there were definitely times I didn’t buy groceries for the last two weeks of the month because I’d spent all my money on records.

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5 cashflowmantra June 29, 2011 at 9:17 am

I do something similar only with fixed and variable expenses. My check is deposited into a checking account at Chase. I then take out the amount for fixed expenses and transfer to another account with online banking that pays for mortgage, car, debt payments at a fixed monthly amount. What is left in Chase is for everyday expenses like food, utilities, gasoline.

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6 Crystal June 29, 2011 at 10:07 am

That IS easy.

We have a more complicated system with like 7 or 8 buckets, a spreadsheet, some highlighters, printouts of our credit card statements…yep, I get detailed…

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7 Melissa June 29, 2011 at 11:45 am

I would think checking account #2 would be a good place to put away money for annual or semi-annual expenses such as insurance, taxes, etc. Then you are still putting money aside monthly for these expenses, but they aren’t in your regular checking account, so you are less likely to “accidentally” spend that money.

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8 LLF June 29, 2011 at 11:52 am

hahaha…people used to tell me I sound like a pushy finance guy when I tell them they have to pay themselves first. i always wonder why people don’t. as for the accounts systems, I put #3 into #1 so only 2 accounts to keep track of. If you always live well below your means(50-75%), you don’t have to worry too much about dipping into savings too often.

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9 Carol June 29, 2011 at 12:10 pm

Comments at the article itself brought up debt payoff. With the high amount of debt that many people are carrying, I think reducing debt is as important as savings.

One idea is that the savings and debt payoff could both be in the first bucket. Have a set amount that would cover debt payoff + small amount of savings (as a cushion). Over time, as the debt is paid off, the savings amount increases. Once the debt is finished, it’s all about savings.

I think having a small amount of savings would give most folks a sense of security, and maybe a shift in the mindset of “I have a crisis I can’t pay for, pull out the credit card.” Then the thought process moves to “I have a crisis, but I’ll use my savings account, as it was set up for emergencies.”

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10 rainbowfish June 29, 2011 at 12:20 pm

This has always been my method.
Checking: One salary goes here for day to day, and when it is pay day, any left from the previous two weeks gets sent to savings.
Savings #1: One salary, the smaller one, goes here. Used to pay the CC for major purchases; and transferred to savings #3 or savings #4 when a large amount has amassed.
Savings #3: Emergency and long term.
Savings #4: Car and College Fund for the child (has a state prepaid tuition and fees account, so this is other college expenses)
I don’t do a percentage to each account. I just wait until the balance in #1 is high enough to do some transferring. Especially since there are the limits to how often I can access my money each month once it is in a savings account.

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11 Jen @ Master the Art of Saving June 29, 2011 at 1:29 pm

Sounds interesting. Has anybody tried this out yet?

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12 bleu June 29, 2011 at 5:31 pm

Very easy, thanks for sharing. I have a very simple system as well. Checking and Savings with my bank and then with ING, I have a savings for all the fun incidentals like travel and a Christmas fund.

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13 Erin June 29, 2011 at 5:52 pm

I agree this is a great & manageable concept to start with. Just a thought about the direct deposit thing. A friend of mine has her check direct deposited into her SAVINGS account and then pays herself from the checking account semi-monthly. This way the paycheck never even hits the checking account, just the money you want is transferred to your checking account each month and the rest is automatically in savings.

I am considering switching to this plan. The initial problem for me was I never had enough $ in my savings to start this program up (not sure which paycheck will start the DD into savings and need to have enough in my checking to last), or couldn’t wait the few days (I have an ING account so transfers take 2 days) to transfer the funds from my paycheck back from the savings account. I am finally in a good enough place to try this method though.

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14 Erin June 29, 2011 at 5:55 pm

Like Melissa’s comment! I already have 2 checking/2 savings set up, but think I will set one of the checking to save for semi-annual car insurance payment :) And freaking hay for four horses. They are going to get their own account soon. *eyeroll*

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15 J. Money June 29, 2011 at 7:19 pm

@Money Beagle – Exactly! Eventually you’d probably grow out of this simple setup, but it would give you the confidence and smarts to keep expanding your empire! :)
@No Debt MBA – Do you keep all yours in the same account and then just divvy it up mentally?
@Colleen – LOVE that idea of no touching for 24 hours! Way to force yourself to stay away – that’s excellent :)
@Melissa – Haha, better on music than on nonsense ;)
@cashflowmantra – (and for presents for J. Money)
@Crystal – Haha, but at least you have FUN doing it! If it works ya gotta run with it, girl.
@Melissa – True true, that could work.
@LLF – For sure, and even THAT tip goes unnoticed :( Personal finance really is THAT easy – you spend less than you make. You can’t go wrong w/ it!
@Carol – You’re right, and actually that’s where I was thinking the debt payments go too – in the checking #1 account. So you can be paying off debt AND saving at the same time – but you determine how much in each department.
@rainbowfish – I can see that working :) I used to do that wayyyyy back in the day, but I could never get it where I’d xfer money out into savings and then KEEP it there, haha… I’d always xfer too soon and realize I actually needed it, and would then turn around and xfer back! It was annoying, and I’m damn glad that’s over with ;)
@Jen @ Master the Art of Saving – Looks like some people are currently trying out versions of it :)
@bleu – Yup, I like it!
@Erin – What? Really???? I love horses! haha… that is too cool :) I’m actually hoping to ride one for the first time in July when we hit up Atlanta for Love Drop. One of our members lives on a farm!

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16 Erin June 30, 2011 at 7:34 am

J – I was the one that emailed you about going to your New Hudson LD – I live right near there and we have 4 horses. If you’re ever in the area again let met know and you guys can come riding :) We also have chickens and ducks so you can gather some eggs while you’re at it.

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17 Checkit June 30, 2011 at 9:01 am

I do something similar. I have savings/checking with ING, checking with bofa and a 3rd checking with schwab.

My direct deposit goes into Schwab, and I calculate all my bills then deposit a check from my Schwab to my boa. I keep a buffer in my schwab and any leftovers I xfer to my savings at ING. I put all my shopping/food expenses on a credit card and pay that monthly. It’s worked out well so far.

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18 Checkit June 30, 2011 at 9:07 am

I don’t deposit into my savings because the xfer takes too long between accounts from ING. Schwab also has the fastest ACH and I get physical checks. I consolidate all my bills and pay everything on that one day which is usually my payday.

I’m working on paying down my debts, so nothing goes into my savings right now. I have enough in there for potential emergencies but in about 6-months I should be debt free!

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19 20 and Engaged June 30, 2011 at 11:39 am

That’s definitely a good place to start. I think we can do something like that :) I’ll talk to the hubbz about it and see what he thinks.

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20 Jen June 30, 2011 at 12:29 pm

One thing you will need to do if you go with two checking accounts is to make sure you get ones that are free no matter what. You don’t want to be hit with a $10 fee on checking #2 because it doesn’t have a high enough balance at first or because it doesn’t have direct deposit.

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21 J. Money June 30, 2011 at 12:53 pm

@Erin – Wowwww that would be SO MUCH FUN!! I’d love to collect eggs – only if I can then eat them! :) Thank you so much, I’ll def. holler next time we’re around. And sorry it didn’t work out for the Drop stuff either, but hopefully another time!
@Checkit – CONGRATS!! That will be great once you’re debt-free :) Such an amazing feeling!
@20 and Engaged – Tell him there’s a beer in it for him ;) Or a “special prize” from you – that usually wins the guys over, haha…
@Jen – Yup! Great point.

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22 Chris June 30, 2011 at 11:36 pm

I have a slight variation of this system….

I have two accounts with Ally Bank, I have my direct deposit setup to deposit my minimum requirement for paying my bills, gas, & fun money (~$50), the remainder of my paycheck goes into my high yield savings. If I am trying to pay down debt faster or make a large purchase i will transfer out of my savings account. I also have a daily transfer from checking to savings totaling $20/week. Finally, once my savings account reaches $1500+ I open a $1000 CD.

This sort of keeps my money moving in a circle. So far I have 5 CDs ($5000), bills are paid 3 months ahead, one months worth of bills in my checking and about $1000 in savings. Now I get paid tomorrow. This will put me over a months worth of bills in checking (which means I pay more towards bills this pay period, and i will go over $1500 in savings which means another CD. :-)

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23 J. Money July 1, 2011 at 12:52 pm

Nice!! You are damn prepared, I like that. Big fan of paying bills ahead of time too, even though people usually say “why not hold onto your money and collect interest/etc and pay at last minute” – i’d go insane. i like that rush of having everything paid off and on time. well done, sir!

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24 C.M.C. July 4, 2011 at 10:39 am

Incidentally, this is the EXACT budget I follow. I didn’t know it had a “creator,” because I’ve been using it for about five years, but I have one slight difference in mine: I use Checking Account #2 as my dedicated expenses account. So, as soon as my paycheck is direct-deposited into Checking Account #1, I have two auto-transfers set-up to move money I dedicate for saving into the Savings Account and to move money for bills or committed expenses into Checking Account #2. This all happens before I even see my account balances.
My debit card is linked to Checking Account #1, because whatever is left in that account is my “allowance” or my weekly miscellaneous spending account. It’s for any unexpected expenses. I try my hardest to NOT spend any of it and let it build up as an almost-emergency fund.
My bills are set to automatically be paid out of Checking Account #2.

And that’s how I budget!

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25 J. Money July 4, 2011 at 7:10 pm

Haha…. that’s how you roll, baby! Keep workin’ it as long as it keeps workin’ for you ;)

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26 Jenna July 5, 2011 at 1:04 pm

I am way too much of a control freak and numbers geek to budget at that high level! But I think this would be great for those who have avoided budgeting if they thought it was too complex. I do use separate accounts, especially with my savings so that I can keep the emergency fund separate from things like vacation savings. If you’re going for simplicity, it’s so much easier to see your balance at a glance than having everything in one account and not knowing how much you have left for household expenses versus “fun money.” However, there are some things I need to do to my own budget to make it more automated, so this is a good reminder. :-)

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27 J. Money July 5, 2011 at 9:46 pm

yeah, i used to lump most of it together too (some still are, but not all of them) and you’re right in that it makes a HUGE difference mentally accounting for the $ than seeing them in separate accounts. I just wish all banks had that ING setup where you can keep creating sub-savings accounts to easily create the different funds :) I bet that alone would help people budget easier!

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28 Rachel July 6, 2011 at 2:25 pm

Isn’t there a limit in the US as to how many times a year you can make a withdrawal from your savings account? I think I read over on Ramit’s blog that the limit was 6 times. If that’s right, this concept seems like it wouldn’t work that well.

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29 J. Money July 6, 2011 at 2:51 pm

Yup, I think 4 or 6 times. But with this budget you only put money in once per paycheck so it wouldn’t affect it here ;) All the xfering/paying/etc comes from the other two accounts which are Checking.

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30 Nikki June 2, 2012 at 9:01 am

I know I’m late on this one but I just got hooked to your website literally last night! I love this post…I would like to apply it to my finances. I bring in $1550 a month after taxes and ins. My rent and bills are, we’ll say $900, I will assume this should be checking acct #1, right? (I have included public transportation into that amount as well) so that leaves me with $650. So I should at least put $100 a month into a savings account and the remaining $550 should go into checking acct #2 ? Am I right? If so, how should I start that? Is it smart to do all of this with one bank or separate the accounts at different banks?

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31 J. Money June 2, 2012 at 2:31 pm

I’m glad you like the site! And you found this post helpful! :) It’s really up to you on how to divide it up, and if you want to create separate accounts or not (some people like doing that across diff. banks, while others (like me) like to have these separate accounts at the SAME bank for ease of use), but either way you can tweak and change as time goes on. You can also automate it if you think it’ll help or manually do it each paycheck too – just depends on your comfort levels and what’s easiest for you. Good work getting started on this though and TAKING ACTION!! That’s usually the hardest part :)

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32 Nikki June 17, 2012 at 1:17 pm

Thanks..July 5th I will be starting this simple bucket budget! I am soo excited to see how it is going to work for me!

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33 J. Money June 17, 2012 at 6:37 pm

Awesome!! I’m sure you’ll do great :)

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