Financial buckets are a way to categorize your savings and spending, which can make it easier to keep track of your income and expenses and provide perspective on what you're doing with your money. These two main categories, short-term and long-term, each have different purposes and use different strategies. The short-term bucket is meant to cover any unexpected expenses that come up in the short term (like car repairs), while the long-term bucket will help you get ready for major purchases down the road (such as saving up to buy a house). Let's go into more detail about these financial buckets in this blog post!
The Two Types of Financial Buckets
There are two types of financial buckets, long-term and short-term. Long-term is usually for larger goals that require more than five years to accomplish, while short-term is used for everyday expenses. Short-term doesn’t mean you can only put away enough money for a few months, though. You should still try to save as much as possible each month because anything can happen in life. You never know when an emergency will strike or if your income will decrease unexpectedly. It's always better to be prepared with savings in case something happens so you don't have to rely on credit cards or loans from friends and family. The best way to save money is by automating your finances—it's easier not having to think about it each month, plus it frees up time for other things!
Why You Need Both Short-Term and Long-Term Budgets
In your budget, you’ll notice two categories: short-term and long-term. Short-term is meant for nonessential expenses that you want to pay off as quickly as possible. These are items like credit card debt, groceries and gas. Long-term is your savings, which will be used for investments or large purchases. This includes retirement accounts, college funds and a down payment on a house. But what happens when we use our short-term bucket for long-term goals? It can easily happen if you aren’t careful about how much money goes into each category.
Budgeting for the Short Term (1-3 Years)
Once you've established your long-term financial goals, it's time to focus on short-term financial planning. Short-term financial planning is about saving for items or experiences that are going to happen in one year or less, or even up to three years. To effectively budget for these items, you have to spend time creating an actual spending plan so that you can know where all your money is going each month. You also need a good understanding of where your money has been in previous months so that you know whether you should be worried about overspending or not. It will take some effort at first, but once it becomes a habit, it'll be easier than ever before!
Budgeting for the Long Term (5+ Years)
Once you've mapped out what your future will look like, it's time to prioritize. The first step is estimating how much money you'll need over a long period of time. There are many factors that play into those costs, but if you know where you're headed and why, it's easier to take steps now that will help in years to come. For example, saving for retirement or buying a home. If you have no idea where your finances will be in five years, start by asking yourself: What do I want my future to look like? Where do I see myself living? What kind of lifestyle am I hoping for? These questions can guide you toward specific goals—like getting married or buying a house—that can help shape your financial decisions today.