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7/13/2012 1:55:32 AM EST
|The Bucket Theory of Financial Management - Are Your Buckets Overflowing?
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The Bucket Theory of Financial Management - Are Your Buckets Overflowing?
To become financially worry-free is not an impossible goal. Through a common sense approach, you can achieve this aspiration by working at it systematically.
Imagine five buckets hanging in stair step fashion, each below and a little to the right of the one above it.
As water flows into the top bucket the bucket begins to fill. When it reaches its capacity, the water flows over the edge and into the second bucket. This process continues until all the buckets are filled.
Imagine that each bucket represents one of the basic financial priorities.
The first bucket represents basic needs: food, shelter, clothing, and transportation.
The second bucket represents financial security and includes an emergency fund and savings plan.
The third bucket represents a family’s insurance needs, including life, health, and property protection.
The fourth bucket represents quality of life.
The fifth bucket represents investments.
The water that flows from bucket to bucket represents the resources a family has.
To build a sound financial base for a family, each bucket must be filled before resources are diverted to the next one.
First resources are used to provide basic needs.
As income increases and money is left after basic needs are met, the extra is used to develop an emergency fund and begin a regular savings plan.
When saving is regular (ideally 10 percent of income) and the emergency fund complete (containing 3-12 months’ salary), the next step is to purchase adequate insurance to protect the family’s health, income, and property.
When adequate insurance coverage is provided, extra money is then diverted to building quality of life.
Quality of life focuses on acquiring some of the wants, extras, and frills.
The last step is to channel the extra money available into investments that will provide a secure future for the family. This might include money for children’s education, retirement, or family goals.
This "Bucket Theory of Financial Management" is a common sense approach to planning a family’s financial future. It provides a systematic way for families to set and reach financial goals and it helps the family build a sound financial foundation.
Author: Ann Henderson, M.S., CFCS USU Extension Agent, Box Elder County
Now, as you read through the above "Bucket Theory", did it seem to make sense to you?
Makes perfect sense to me.
However, as I read through it, I had to wonder how, if a person is constantly overwhelmed with maybe not being able to fill that first bucket, how and when will they ever be able to move onto the next bucket?
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|the water flows over the edge and into the second bucket. This process continues until all the buckets are filled. i like it|
|Excellent post Darleen, thanks for sharing!|
|Excellent post Darleen! It is critical to plan for the future. The Bucket Theory is a great example.|
|Great blogpost. Thanks for sharing. Have a great day|
|Thanks for a great post. I like your Bucket Theory.
Success! sharing this|