Budget Series-Filling Up The Buckets
So here we are, on our 3rd post/video about Budgeting. I hope you’ve been enjoying them so far. Today’s topic is a follow up to the concept of the Three Bucket Budget:
Bucket 1: Monthly, Quarterly and Annual Expenses (MQA)
Bucket 2: Credit Card Purchases
Bucket 3: Cash Purchases
If you’re following along with us, by now you’ve identified your expenses and sorted them out into their respective buckets. Now it’s time for the fun part-FUNDING your buckets (or filling them up)! Before you can start putting your money into the right bucket, you have to determine how much money you really have to work with. Two key terms here are “gross” and “net”. For our purposes, “gross” income is our salary, while “net” income is the money we have to work with AFTER we’ve set aside money for taxes, retirement and our kids’ college tuition.
Once you have your “net” income, it’s time to fill the buckets. Michael’s advice, and how we set up our allocations, is a simple percentage:
60% of net goes into the MQA Bucket
20% of net goes into the Credit Card Bucket
20% of net goes into the Cash Bucket
One caveat to keep in mind for the MQA Bucket is to make sure that your housing expenses (mortgage/rent payment, taxes, insurance and association dues) do NOT make up more than 30% of your MQA line items. Professionals refer to this as P-I-T-I-A, or:
Principal
Interest
Taxes (property)
Insurance (home)
Association dues
In simpler terms, your total housing expenses should NEVER exceed 18% of your net income, although many banks and other lenders will tell you otherwise.
One question we often get is what to do if you can’t fully fund all three buckets. What we do is to start cutting as much as we can from Buckets 2 and 3, and if we’re still short, then start looking at discretionary items in Bucket #1. For us, we’ve always lived not just within our means, but below them, in order to get our budget in line with that 60-20-20 breakdown. It won’t happen overnight, and it doesn’t mean it’s for everyone, but it’s worked really well for us and we wanted to share with you all how we do things. If you want to hear us talk more in depth about how suggestions for how we got our budget in line and what P-I-T-I-A really is, watch the video here.
We’re planning on doing at least two more videos (and blog posts) in the Budgeting Series, including one on how we invest and save for big ticket items. For our last budget video, Michael and I would really like to answer your specific questions, so if you have any, please list them in the comments section and Michael (or I) will answer them in an upcoming video in September.
I am trying to get out of credit card debt and make large payments to several credit cards per month. I am not sure what bucket this would go into. Love this series , my husband can’t believe that I want to budget!
It would go in bucket #1-MQA. You have a recurring charge that you MUST pay every month, so until they’re all gone, it would go in MQA.
Do u have an easyExcel template u could share?
Everything I have is linked on the blog.
Hi kiddo< it's me Linda, long time subbie from YT. I am rubbish at managing money so, this series is good news for me. thank you both! Credit card debt is my major issue and most of it is from beauty purchases. This type of spending was never a problem until I started watching YT. When I began making beauty/healthy lifestyle videos my spending continued. One tool that I have employed to curb this sort of spending is eliminating viewing/making videos almost entirely. I tried to self regulate but, failed. Drastic? Yes! Difficult? Yes! I feel like I am missing out on my "visits" with my YT friends. How do you manage this? Also, from which bucket does your beauty spending come from? I see line items for "haircuts" but, does that include your salon appointments? What about clothing? I know this is a long comment and i'm asking a lot of you but, please enlighten me. I could use a virtual life jacket of suggestions! Thank you, Linda
We’re obviously not going to reveal all of our finances on YouTube, but generally I manage most of my personal spending from what I earn from my YouTube channel and my blog. I budget that the same way we budget all of our expenses-I just set an amount, and once I reach that amount, I stop spending.
Love the two of u!!
I have identified the items for my 3 buckets but I am having a hard time wrapping my head around having the fund available or extra funds to set aside in each bucket when I’m already chasing next week’s paycheck to pay for bills due last week? How can I manage to get ahead of the game and not chase each paycheck?
Thank u so much! !
You may need to lower what you allot to the “extras’ or items that are a bit more optional until you get a better handle on things. The hard reality is that most of us are living above our means, and budgeting this way is a major wake up call. It takes a lot of self-control and discipline to live like this, but the end result is no debt, a good amount of savings, and NO STRESS!! 🙂
Hi new subscriber here, somehow ended up watching a bunch of this budgeting videos lol. I have a question regarding the taxes reserved.
When you say net income after taxes are you refering to gov taxes? if so, does this means you split this Yearly amount into 12 months? how do you estimate those? and how come they are not on your MQA (your retirement and kids college arent either)?
Hopefully im not being annoying, thankyou!! love your videos and you guys couple dynamic #goals
We have an escrow account that we use to set aside for taxes. Every time income comes in, we pull out the amount based on our personal government tax rate. The remaining amount gets subject to further division in accordance with the bucket (that was Michael dictating to me!). Thank you so much for watching and for asking excellent questions!
Are you going to resume the budgeting series? I loved it, but it came to a halt and I could listen to Michael talk about finances forever!
It’s definitely something we want to revisit, but the areas that are left to talk about get into a tricky area. We can’t give too specific advice about investing, and that’s an area a lot of people had questions about. Was there a specific question you had or a topic you want us to talk about?
you mentioned that your emergency savings is a line item in your MQA bucket. so do you actually keep that savings in the MQA account? and how do you make sure not to spend it if it’s all in one account?