Beyond the Emergency Fund: Savings Buckets You Should Have

Because my mom is a financial planner, I’ve always known saving is important; however, I would usually just set aside a lump sum each month for my emergency fund. While I occasionally used my “emergency” fund for true emergencies (like repairing my car after an accident or paying for a trip to urgent care), I often used my fund for paying off taxes, buying gifts, and going on vacation. Because of my willy-nilly savings method, I never had 3 months of expenses saved in my emergency fund nor did I have the money I needed and wanted for gifts, vacations, and other expenses.

In the end, I decided I needed to put my savings into different “buckets”. Differentiating my savings has allowed me to better plan and prepare for the future without depleting my emergency fund.  The following are a list of savings buckets you might consider having:

Vacation Savings

My husband and I write out the trips we know we will take during the next year (i.e. for weddings or holidays), and then write down some trips we want to take. You can use Google Flights to estimate ticket prices, check different hotel chains or Airbnb to determine possible lodging costs, and budget money for food and activities. Once you have an estimate for the cost of each vacation, you can create your vacation savings bucket and decide how much you need to save each month to reach your goal. If you have the money to do so, it might be helpful to add an extra $500-$1000 to your bucket to plan for unexpected costs or trips.

2. College fund

I would start by talking with your kid or grandkid about your and their expectations for college. For example, you may expect them to attend a state school, while they were hoping to attend an out-of-state college. Discuss different options with them and look at the price of each together. Once you have thought through the options, you can each commit to how much you can cover for college. For example, you may offer to cover 80% of tuition at a public school or 40% at a private school, and expect them to cover the rest. This conversation will build their financial knowledge, help you determine how much you need to save each year to help them pay for college, and push them to plan to save or get a job to afford their education.

3. Gifts 

I like to make a list of the family and friends in my life with whom I exchange gifts during birthdays or holidays. I set a maximum spending amount for each individual, which allows me to calculate how much I need to save each month to reach my overall goal.

4. Taxes

Have you ever been surprised by how much tax money you owed? If so, review your tax bill from previous years to determine how much you need to save over the course of 2018 to be prepared to pay taxes come April next year. You might also consider increasing your withholdings so you can reduce next year’s bill.

5. Home Improvement

I added home improvement as a savings bucket when I noticed myself blowing through savings on gardening projects, painting work, and new furniture. When I realized this habit, I decided to make a “house checklist” every 6 months or so. I walk around my house and write down changes I’ve been meaning to make. Most recently, I noticed I wanted to install a new sprinkler system and invest in some new carpets. I estimated the cost for these projects and started adding money to my home improvement bucket accordingly.