We are focusing on how to save money in #FinancialFitness2018. See our last post for how the Bucket Strategy works, and read on to see how it is implemented!

We discussed breaking our savings up into different buckets, based on how soon you’ll need the money. The next step is figuring out how to take these figurative buckets and put them into action. This gets a little bit complicated, because I’m explaining the different types of accounts that are available. To see what would be most appropriate for you, reach out to us and we’d be happy to go over your investment accounts with you and work with you to create a plan for your savings. 

When I meet with clients, I spend time going over the different accounts that they have. There are essentially two different kinds of accounts; non-qualified and qualified. Non-qualified refers to any taxable account. We can use these two different types of accounts as tools for the Bucket Strategy.

Non-qualified accounts include checking and savings accounts at the bank or credit union, and individual or joint accounts with an investment firm. The capital gains and earnings on these types of accounts are taxable.

Qualified accounts are retirement accounts, including 401ks, IRAs, 403(b)s, 457s, etc. These accounts are tax deferred, meaning you pay taxes on the assets when you take them out (with the exception of a Roth IRA, but we’ll leave that out for now!).

For the short term bucket, a savings account is typically the most appropriate. Because you might need access to these funds at any given moment, we typically recommend that they be kept in cash, and not invested in the stock market. For me, my goal is to have 6 months worth of income saved in this bucket.

Your next bucket, the mid-term bucket, are funds that you are planning on having access to in several years. For me, the time horizon for this bucket is about 10 – 15 years. This can be different for everyone. The reasoning behind the mid term bucket is, I don’t need access to the cash now, but I also want to be able to have access to it in the future should I need it. Because of this desire to have access to the funds, I should keep it in a taxable account. I shouldn’t put it into a retirement account because your ability to access the funds is limited. If you try to take an early distribution from a retirement account, you have to pay a 10% tax penalty on the withdrawal.

For this bucket, I opened an individual brokerage account, where I can buy stocks, bonds and mutual funds. This allows me to invest money in the stock market. I kept the short term bucket in cash, because I might need access to it soon, but because I don’t need to access the funds in my mid term bucket for several years, I was able to take more risk. I selected investments based on my risk tolerance, which is different for everyone.

The last bucket is the long term bucket, or the retirement bucket. This is when you would use one of the qualified accounts. You might have one available through your employer, or we could open one for you. In this account too, you would likely invest in the stock market. For most of our clients, because this is the money that you won’t need access to for a long time, you are able to be the most aggressive with your investments. Again, this is different for everyone.


This is one way you can implement the Bucket Strategy! Some clients have more than three buckets. They break their savings into a variety of future needs, including saving for a vacation, home renovations or a new car. The important thing is to make sure you’re funding all of your buckets, and then to invest the money appropriately depending on how long it is until you need access to the funds.


Please reach out to us if you need any help figuring out how to implement the bucket strategy! Sue, Gayle and I are available to help whenever you need it.

#FinancialFitness2018 #FinancialPlanning #Saving #BucketStrategy

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