When you want to save, seeing a lump sum in your account isn’t much help. Creating bucket accounts can help you see where you stand—and how far you’ve got to go.
Here’s how it works:
Step 1: Set your budget priorities
Creating a basic budget is easy. Subtract your monthly spending from your monthly earnings and circle the result. Next, spend five minutes making a list of any extras you want to have money for this year and estimates of how much each will cost. Maybe they’re purchases, like a new couch, or experiences, like attending your cousin’s wedding.
Step 2: Open your bucket accounts
Start by opening three bucket accounts: one for checking/spending, one for short-term savings and one for long-term savings. These three buckets will cover your basics. Now open additional buckets for the extra items from your list that you want to save for.
Tip: Name each bucket something motivational, like “Weekend at Yosemite—$500.”
Step 3: Kick-start your savings
Set up automatic transfers from your checking account or direct deposit from your paychecks to funnel money into your buckets every month. Once your transfers are set, track your progress by checking your account balances online or setting up mobile alerts for your phone.
With spending and savings buckets, it’s easy to track your money and put it toward the things that matter to you.
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There are plenty of tips and tricks out there to help you improve your savings habits, from creating a budget to setting up automatic transfers from your checking account after every paycheck.
But researchers from the Stanford Graduate School of Business have a new one for you: Embrace the power trip.