Budgeting? Try a bucket instead

Many advisors and financial counsellors encourage consumers to draw up a budget that details all their expenditure as a way of managing their finances. However that approach is time consuming and can be disrupted by unexpected expenses.

A new approach is being promoted by financial planners in the USA called bucket budgeting. Bucket budgeting is budgeting lite for people with little time says financial planner Marilyn Spencer.

Most recommended is the "three bucket" approach whereby income is divided into three separate bank accounts (or buckets) – one for long term saving, one for fixed expenses such as mortgage and bills and one for everyday spending on items like groceries.

Consumers are advised to determine how much of their weekly earnings they wish to save, how much they need to meet their fixed costs and how much they need for living. Those amounts should be directed to separate accounts, preferably by the employer's payroll department.

"It's a way to fool yourself into thinking you have less money than you do" says Spencer.

Source: The Australian