For Every Goal, Have A Bucket For It (From My Perspective)

The Start

Finances can be scary due to the fact most of us weren’t taught how to balance a budget, learn about the stock market, or set up accounts for retirement. Once I got a job with a livable income, I wanted to know everything possible about finances. At the start, I felt as if I had jumped into a dark cave with no lights. Nothing made sense, and it felt like I was relearning thermodynamics in college again. However, over time I started to learn about what I call finance buckets and how to utilize them to my advantage. This short blog goes over 6 buckets that I use to simply finances and maximize efficiency.   

Emergency fund 

  • Any disposable income available goes into this bucket
  • Take advantage of high-yield savings accounts to accrue more interest 
  • Have at least 6 months’ worth of living cost in the account
  • If your living costs are $3,000 per month, have a $18,000 emergency fund
  • Use this for oh-crap moments
    • Car breaks down
    • Fridge breaks
    • Medical emergencies 
  • Able to withdraw the money at any time 

 

Checkings Account 

  • This bucket should be paired with a savings account with the same reputable and trustworthy bank or platform
  • Use this bucket to pay for 
    • Bills
    • Credit card payments
    • Loan payments
    • Anything that you would have to use a check or money order for
    • A place to hold your paycheck to siphon out to other buckets

Savings Account 

  • This bucket should be alongside your checking account with the same reputable and trustworthy bank or platform  
  • Use this bucket to pay for
    • Vacations
    • Taxes
    • Wants like a
      • Laptop
      • Car
      • Video games
    • Secondary Emergency Fund!!

Retirement Account 

  • This bucket is used for retiring at the age of 59 1/2. These are tax-sheltered accounts to help make you money to go to the Bahamas or casino anytime. 
  • Four common types include
    • 401(k) and IRA 
      • You can use your contributions as deductions to decrease your annual income to lower taxable income
      • You will have to pay taxes when you make withdrawals
    • Roth IRA and 401(k)
      • Cannot use your contributions as deductions to decrease your annual income to lower taxable income
      • Withdrawal the money tax-free when you retire at 59 1/2

Growth/Sink Bucket 

  • This is a bucket that you open up a brokerage account to invest disposable income in high reputable growth companies or exchange-traded funds (ETFs) that return money at a rate of 8-12% (higher than a savings account) and to be used for future purposes likes
    • Money to to put a downpayment on a
      • House
      • Beach house/condo
      • Car
    • Vacations
    • Starting a business
    • Flipping houses
    • A Third Emergancy Fund!!

Standard Brokerage Bucket 

  • Use this as your vehicle to retire early and be financially independent
  • Invest in companies that match your timeline for when you want to retire
    • If you want to retire in 30 years, focus on companies that have a lower dividend yield and higher dividend growth rate
    • Focus on the stocks 10-year capital appreciation or annualized returns
    • What’s the stocks 3, 5, 10-year dividend growth rate
    • What is the stocks 4-year average dividend yield
    • Different sectors grow at different rates
      • For example, technology grows faster than consumer staples
  • Invest in companies that you understand 
    • If you don’t know how the company makes its money, its moat, or how the business can grow, then don’t own it
    • Do your own due diligence when you invest into individual companies! 
      • Research them! 
  • Invest in blue chips companies like Lowes, Apple, and Microsoft
    • These companies have what is called a wide moat; no competitor is going to quickly swoop in and knock them out from competition 
  • Don’t invest in companies that have a high yield
    • This is what we call the dividend or high yield trap
    • Focus on the payout ratio of your stocks, if it is above 90%, that company may cut its dividend
      • Intel (INTC)
      • VF Corp (VFC)
    • Investing in high dividend yield stocks does not equate tax efficiency
  • This is your F@#k You Money
    • Use this money to quit your job while you find a new one or just live on it
  • Understand your risk tolerance
    • If you don’t like high volatility, invest in lower beta companies like JNJ or PG
  • Dollar Cost Average (DCA)
    • DCA each week, bi-weekly, or monthly to lower personal anxiety of when to buy into the stock market
      • You average into the market, average is okay! 
    • Have it automated to reduce your to do list!
  • Don’t invest more than 6% of your portfolio into one company (unless it is an ETF)
  • Don’t invest more than 30% of your portfolio into one sector
  • If you don’t want to worry about your portfolio, follow the core and satellite plan
    • For example, your portfolio can be allocated such that
      • 80% of your portfolio is in ETFs
      • 20% of your portfolio is in stocks that you like and know
    • You can also do a 60/40 split or a 76/24 split!

"Those times when you stay up late and you work hard; those times when don’t feel like working — you’re too tired, you don’t want to push yourself — but you do it anyway. That is actually the dream. That’s the dream. It’s not the destination, it’s the journey. And if you guys can understand that, what you’ll see happen is that you won’t accomplish your dreams, and your dreams won’t come true, something greater will." - Kobe Bryant

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