Bucket budgeting

What It Means

Bucket budgetingBudgetA plan for a set period, usually a month, that lists the money you expect to receive and how you'll spend or save it. See more splits your money into separate buckets, each with one job, such as bills, everyday spending or a savings goalSavings goalA specific amount you plan to save by a set date for one purpose, which turns into a monthly or per-paycheck amount to set aside. See more. Each paycheck is divided among the buckets as it arrives, and a bucket pays only for what it's for. Some banks, Ally among them, offer buckets inside a single account as a digital version of the envelope methodEnvelope budgetingA budgeting method that gives each spending category its own envelope of money, and spending in a category stops when its envelope is empty. See more, and Experian's guide describes getting the same effect with separate bank accounts.

How It Sounds at Home

• "That's coming out of the trip bucket, not the bills bucket."
• "Half my paycheck goes straight to the bills bucket."
• "I've got a bucket for Christmas now."

The Breakdown

Formula

Share of a bucket = the bucket's amount ÷ the paycheck × 100. Left without a bucket = the paycheck minus everything you've put in buckets.

Worked example. Sam takes home $2,400 a paycheck and splits it into four buckets (made-up numbers):

That leaves $150 with no bucket. Sam gives it to emergency savings, which brings that bucket to $350 and leaves nothing unassigned.

What the result means. When "left without a bucket" reads $0, every dollar has a job. A negative number means the buckets promise more than the paycheck holds, so one of them has to shrink. The share column shows where the money really goes, and a bills bucket taking most of each paycheck is a sign to look at the biggest bills first.

How to set it up

1. Pick your buckets, starting with bills, everyday spending and one savings goal.
2. Decide how much of each paycheck each bucket gets.
3. Use your bank's bucket feature, or separate accounts, to keep them apart.
4. Pay each cost from its own bucket, and adjust the amounts after a month or two.

Good to Know

Buckets inside one account divide it on screen, while the money still sits in that single account. Separate accounts keep the buckets apart for real, which Experian's guide to budgeting with multiple accounts describes. For bills that come once, twice or four times a year, the Consumer Financial Protection Bureau's Your Money, Your Goals annual planner helps you list them across the year, and each one can get its own bucket filled a little every paycheck.

Related Terms and Categories

• Envelope budgeting

  A budgeting method that gives each spending category its own envelope of money, and spending in a category stops when its envelope is empty.

• 50/30/20 rule

  A budgeting guideline that splits after-tax income into 50% for needs, 30% for wants and 20% for savings and paying down debt.

• Sinking fund

  Money set aside in small, regular amounts for a known future cost, so the bill doesn't land on a single paycheck.

• Zero-based budget

  A budget that assigns every dollar of income to spending, saving or debt, so income minus everything assigned equals zero.

• Savings goal

  A specific amount you plan to save by a set date for one purpose, which turns into a monthly or per-paycheck amount to set aside.

Household money and budgeting