Trickle-down Effect For Your Savings Buckets

Where should I save my emergency fund? Should I begin with investing or put money away for my kids? These are the questions of a young couple that wanted to make sure they were saving money in the right places. This episode will give you a clear picture of how your extra money should trickle-down from one savings bucket to another.


01 water pitcherImagine a pitcher

No, not St. Louis Cardinals pitcher Adam Wainwright, I'm talking about a pitcher that holds liquids. Imagine that pitcher is your spending budget. All the money you need to spend this month fills this pitcher to the brim.

If your income is $5,000 and your Spending Budget Pitcher only holds $4,000 then the extra is going to overflow its banks.

Where does it go?

Bucket 1 pngSavings Bucket #1: Local Bank

Now imagine a bucket underneath your Spending Budget Pitcher. The extra money that you aren't spending will flow out and fall into Savings Bucket #1. This bucket needs to be very liquid (easy to get to) and secure. I recommend this be your local bank.

You want to build your beginner emergency fund up to $1,000 inside Savings Bucket #1. This money is only to be used for emergencies and emergencies only. One thousand George Washingtons will take care of most unexpected expenses.

What happens when I have saved $1,000? Where should my savings go next?

Bucket 1 pngSavings Bucket #2: Online Money-Market Account

Any extra money you can save needs to be put away for larger emergencies. This needs to be in a secure place, similar to a local bank, but can be saved inside an online money-market account.

Online money-market accounts earn better interest than your local bank. It also keeps your savings liquid – allowing you to move money into your bank account within 2-3 days.

You want to put 3-6 months worth of expenses into this account for those larger unexpected expenses. That money will take care of a layoff, an emergency house repair, or sudden medical expenses. I hope you never need to use your 3-6 months of expenses but I know this fully-funded emergency fund will keep you from going back into debt when something really bad happens.

Bucket 1 pngSavings Bucket #3: Retirement

NOW we're talking! Local banks and online money-market accounts aren't going to cut it for retirement savings – we need investments. Retirement accounts such as 401k, 403b, Roth IRA and Pensions offer wonderful tax-saving advantages that normal investing can't give us.

Find out what kind of incentives your workplace offers or enter the open-market for thousands of mutual funds within a tax-favored Roth IRA option.

This bucket can hold up to 15% of your household's income every year. Anything extra can flow out and into Savings Bucket #4.

Bucket 4Savings Bucket #4: Kid's College

It is not mandatory to save for your kid's college, but if you decide you want to help then starting a college savings account is the next bucket to trickle-down your savings.

I prefer an ESA (Education Savings Account) because it is more versatile than other tax-favored education savings plans. However, contributions (money you put into the account) is limited to $2,000 a year. That's not bad but you might have a need to save more or your children could inherit some money from an aunt that passed away. In these situations it would be a good idea to invest in a 529 plan. Use caution: Some of these plans are not flexible and they are run by the State.

You may not have any children or they might have already graduated. In this case you can pull the “Kid's College” bucket out of the lineup and allow your additional savings to overflow into Bucket #5.

Savings Bucket #5 is a HUGE TUB OF WEALTH!

Bucket tub 5

Imagine your debt is paid off, you have $1,000 liquid in your bank and 3-6 months worth of expenses in an online money-market account, retirement savings is underway and you get to put a few thousand dollars away for your kid's college. What do you do with the extra money that your Spending Budget Pitcher can't handle? Build Wealth!

Some individuals will invest in single stocks, municipal bonds, precious metals like silver and gold, or get into rental real estate. The only requirement is that you understand what you are investing in and have a plan.

There is no limit on how much money you can sock away for wealth-building. You also will find it more difficult to shelter the investments from taxes. I wouldn't worry too much about it – you are building wealth and giving a bunch of it away.


Are you ready to take control of your money? You are sick and tired of always feeling broke so it's time to hire a Financial Coach to show you how to save money, get out of debt, and start living the type of life you were meant to live. Contact me, Steve Stewart, and let's get you away from the debt slaughter!

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1 Comment

  • MrJoshuaBrown

    Reply Reply October 10, 2013

    Loved the youtube video!

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