Don't let worries about Credit, Debt, Money, and Security get you down
Free Yourself, like a Gazelle from the Hand of the Hunter, like a Bird from the Snare of the Fowler! Prov. 6:5
The Long-Term Bucket
“How do I fill up my Long-Term Bucket when I can’t even afford to pay my current bills? Shouldn’t I just wait awhile until I’m in better shape?”
I know that’s what you’re thinking. And it makes so much sense to wait, right? Logically, you should start paying off your bills and start building up your checking and savings accounts. And then when you have a bunch of money saved up, you can start investing in the stock market. Right?
Wrong, Wrong, Wrong…
In order to reach your retirement years in good enough financial shape to actually retire, you’ve got to start building your Long-Term Debt Paying Funds right now! You cannot wait until you are too old to work to start building up this account, and you will simply never start building this account if you wait until you have surplus funds in your Short-Term Bucket.
Short-Term funds are too easy to spend, too easy to access, too easy to for you to just buy something you need vs. trying to figure out a less-costly alternative (the reason you got into so much credit card debt in the first place was because it was too easy to access spending funds by whipping out a piece of plastic, and your Short-Term Bucket will empty just as easily as you go along).
Get Rich Quick?
Your Long-Term Bucket will also benefit from the advantage of “Time”. Having these investment vehicles open for longer periods of time will make them more valuable. If you don’t allow them the time they need to develop for you, then you will run into the frustration of chasing “Get Rich Quick” schemes – which almost always fail. Allow enough time, and you can get rick slowly, steadily, and safely.
We’ll look at some Long-Term Bucket vehicles in the next article – and once you read that article, you’ll begin to believe that this is actually something you can do. I know what your assumption is at this moment when I’m talking about “Long-Term Investment Tools”.
You assume that I’m immediately talking about “Go out and buy 100 shares of Microsoft and hold it for the long term…” But you would be seriously wrong in that assumption.
I Get Where You’re At Right Now!
Again, the type of person who found this website are not the independently wealthy individuals among us looking to me for investment tips or the next hot commodity scheme. The people reading this website info are people struggling with day to day living, too much debt, not enough savings, and worries about the future. I know who you are.
And for me to tell you to go open a brokerage account and start learning about the Price/Value ratios of company stocks, or maybe teach you the tricks of “Puts and Calls” really has no place in your world. That is just NOT what I’m going to be talking about.
Read on. This will be accessible to you and can help you get to the point – someday – where those other “investor” things are important to you. For now, we just need to get you started on a path that will lead to a better tomorrow. That’s my goal – I hope you’ll come along with me and get started building that better tomorrow.
Your Short-Term Bucket
We’ve talked about dividing up your future financial needs into 3 Buckets: Short-Term, Mid-Range, and Long-Term. Your assignment was to write out a list of expected financial obligations that will occur in the future, and then group these obligations into these 3 Buckets.
The goal for this assignment is to attempt to actually prepare for the future instead of constantly reacting to the present. Wouldn’t it be cool if when that car of yours needs replacing or your daughter needs braces that you actually have money set aside that you can pay cash for it rather than trying to figure out which of your wallet-full of credit cards has enough room on it?
By the way, having this plan in place and getting your Buckets fully filled is called “Financial Security” – and it’s very, very nice when you get there. And you CAN get there, regardless of where you are in your financial life right now.
Let’s Get the Short-Term Bucket Filled, Shall We?
Okay, your short-term Bucket, by definition, consists of any significant expenses coming up in the next year. Things like:
- Replacing a vehicle
- Dental procedures
- House repairs
- Down payment on a house?
- Vacation
- Season Tickets to your favorite sports team
- 6 months of salary (an absolute MUST!)
Put a dollar amount on these items – that’s your Short-Term Bucket list. I don’t care what you put on the list – it’s YOUR list – but we need a dollar amount to shoot for. Because that’s how we’ll know when the Bucket is full.
Maybe you currently have absolutely zero money in savings right now. That’s actually NOT unusual at all, so don’t beat yourself up. Well, okay, beat yourself up a little, but then get over it.
If you find you need some help getting started, check out some of these articles on this website: “Get $500 In The Bank Now!”, “How To Get $500 In The Bank – FAST!”, “Need Cash? Try an “Income Blitz””. These articles will link with other similar articles, and you can learn how to jumpstart your savings plan.
Getting Specific
Your savings vehicle for your Short-Term Bucket is going to consist of:
- Cash under the mattress (Hey, some people LIKE having cash around – and that’s okay. If you have it, it’s part of your Short-Term Bucket.)
- Savings & Checking Account
- Vacation Savings Account
- Money Market Account
- Short-Term Certificates of Deposit
These vehicles are readily available to you – easily accessible for those short-term needs – and NOT susceptible to market ups and downs. And this is where you get the money to pay for those Short-Term items on your list.
Time For Tough Love
You put a lot of “needs” on your short-term list, and the amount of money you have filling this Bucket isn’t going to cover all of them. Right? Like, maybe you “need” a new car, or you promised your kids a Wally World vacation this summer, and if you don’t renew your season tickets this year you’re going to lose your seats – forever!
Awww… Choices. Aren’t they fun? Are you going to keep spending money you don’t have? Or are you going to reach for “Financial Security”? That’s what you’re facing right now. If your Short-Term Bucket doesn’t supply your every Short-Term “Need”, you’ve got to cut down on what you think a “Need” is.
For example, you don’t NEED a NEW car – nobody does. What you NEED is transportation. You can find a cheap used car, you can ride mass transit, you can borrow Mom’s old Crown Victoria for awhile. The NEED is to be able to get back and forth – the DESIRE is to maintain some sort of “status” with the friends and co-workers. You simply may not be able to afford your DESIRES right now.
Fill the Short-Term Bucket, but do it without neglecting your other two Buckets. (See “How Do You Fill the 3 Buckets?”)
How Do You Fill the 3 Buckets?
You’ve written down your needs for your 3 Buckets and divided them up into your Short-Term Bucket, your Mid-Range Bucket, and your Long-Term Bucket. Now it’s time to fill the Buckets with assets – to pay for those future debts as they occur.
Again, I don’t care what you put on your lists – they are YOUR needs, not mine. You’ll just need to figure out a way to pay for them from your 3 Buckets as they occur. When you get to this point – where all your future needs are being funded as you go without incurring additional debt – you have reached “Financial Security” and life is good.
Divide Your “Extra Money” Into 3 Parts
Remember, half of your “extra money” is going towards debt reduction, and the other half is going towards savings and investment (or as we put it in a previous article – towards “future debt reduction”). I want you to divide the half that is going towards savings into 3 equal parts. This is going to seem crazy, but it works!
Take these 3 equal parts and put 1 part into your Short-Term Bucket, 1 part into your Mid-Range Bucket, and 1 part into your Long-Term Bucket. When you are first starting out, you may just have to put all of your “extra-money” into a savings account for a little while until you get this thing rolling a little bit. But just understand that the idea is to put a equal part each month into EACH bucket.
We have a separate article on our website here that talks in greater depth about each of our 3 Buckets. But I just wanted to take one article to give you an overall view of HOW you’re going to fill the buckets..
The 3 Buckets are Different Sizes
When you first start out, all 3 Buckets seen HUGE! How in the world are you going to get enough money into savings to pay for all your short-term needs this year? Let alone putting away enough money for college for the kids and retirement and world travel later on? Especially since you’re supposed to be dividing your “extra money” in to 3 parts and putting a little into each bucket equally?
Here’s a couple of keys to give you a glimmer of hope:
- Because you have debt you’re trying to pay off, only HALF of your “extra money” is going towards these 3 Buckets. Once you get the debts paid off, you’ll have an “extra half” to add to your Buckets – doubling your savings! That’s huge! And because you’re not taking on more debt along the way, and you’re making better spending choices, and you’re earning more money – you’ll start having even more “extra money” to apply.
- This system helps you prioritize your spending and sort out “needs” from “desires”. Maybe you have a short-term need to buy, but you don’t have enough in your Short-Term Bucket to pay for it. This system, if you can resist the temptation to take on more debt, will help you find alternatives to that “need”.
Maybe you have a child ready to start college this Fall, but you have no college savings. It would seem you would “need” to take out a student loan to pay for the college of her choice. Don’t want to let the kids suffer because of YOUR lack of foresight. But your kid doesn’t NEED to attend that college in the Fall. Instead of spending money you don’t have, opt for a Community College for a year or two (seriously, the classes are about the same and will transfer over at full credit) and this will allow you time to fill your Mid-Range Bucket to pay for the final years, AND it will teach your kid a valuable lesson about financial management.
You’ll put money into the 3 Buckets equally, but the 3 Buckets aren’t the same size. Your Short-Term Bucket is the smallest one – and you can make it even smaller by cutting back and making different choices as you go. Your Mid-Range Bucket is the next smallest one. And your Long-Term Bucket is the biggest one – so big it can never be filled completely.
Once you’ve filled the Short-Term Bucket, you’ll be able to start dividing your “extra money” into only 2 parts – half goes in the Mid-Range Bucket and half goes in the Long-Term Bucket. And then, once the Mid-Range Bucket is full, you get to put ALL your “extra money” into the Long-Term Bucket. This is a really good time in your financial life – all your short and mid goals are funded and you’re just building wealth for the future. Nice!
Set up your 3 Buckets TODAY! Don’t wait until you’re better off – do it NOW! Better off ain’t coming unless you take action on this right away. It’ll change your life because you’ll finally be in control!
The Future is NOW! A further explanation of Your 3 Financial Buckets
I always thought that saying was stupid. “The Future is Now!” That doesn’t make any sense. The future happens later, and right now you have creditors to pay. So you should take care of your old debt before considering the future, right? Those bills are sitting on your counter NOW! Those collectors are calling NOW! That other investing stuff comes later, right?
Absolutely wrong! The problem with this way of thinking is that it causes you to get defeated by upcoming obligations and financial “surprises”. You’re spending every dime you can spare on paying down debt, and then, BAM! You get hit with an unexpected car repair, an appliance that needs replacing, a medical emergency, etc. And you have no way of paying for it except to take on more debt. And all your hard work goes to waste – so why even bother…
A better approach is to understand that short-term expenses – those things happening in the next year – are going to happen in the next year. Your mid-term expenses – those things happening in the next 2-5 years – are going to happen in the next 2-5 years. Etc…
That’s Pretty Obvious…
Yes, it’s obvious. But those caught up in debt very often fail to believe it. You pay your extra money towards your debt, and your short-term expenses cause you to take on more debt this year. Then the mid-term expenses start hitting you, and you’re still reeling from the short-term expenses that you couldn’t afford.
And if you continue this cycle, pretty soon your long-term expenses are upon you, and you have absolutely no way to pay for them because you still have short-term and mid-term expenses that still aren’t paid for.
A Better Way of Thinking:
In the article, “The Half-n-Half Way to Improve Your Finances”, I suggested that you should begin dividing your “extra money” into two parts: Half-n-Half. (“Extra Money” is defined as money you save by reducing your spending, earning more money at work, or earning more money on-the-side.)
Use half of your “extra money” to pay down debt. Use the other half to fill your 3 Buckets. I’ll get in to more specifics on this in future articles. You still may be resisting the idea and it’ll be extremely easy to pull this savings out before it’s intended use comes around. But maybe it’ll be helpful to think of it this way:
Future Expenses = Future Debt
Your 3 Buckets are future expenses, i.e. future “debt”. So by setting aside half of your “extra money” to fund these future expenses, you’re not actually “Saving” anything. All you’re doing is paying off your future debt NOW. That “Future is NOW” thing kinda makes sense all of the sudden.
Again, half your “extra money” is paying down past debt and the other half is there to pay for future debt. So really, ALL your “extra money” is going towards debt this way. But the beauty of it is that your future debt will cost you far less this way, because you’ll be able to pay for it in cash without incurring a nickel’s worth of interest. And really, interest is the reason debt is so crippling and debilitating.
Your Financial Bucket List
In the page, “How To Build An Investment Portfolio”, we talked about creating a “Bucket List” for your financial goals. Specifically, you should group your financial goals into 3 Buckets, and then you’ll go about using these 3 Buckets to allocate your savings and investments.
To review what these 3 Buckets are, here they are again:
Divide your list of goals onto 3 lists – or Buckets. You should have a:
- Short-Term Bucket (things happening in the next year)
- Mid-Range Bucket (things happening in the next 2-5 years)
- Long-Term Bucket (more than 5 years away)
Filling Your Buckets
It’ll take us a few articles to get into specifics about what types of investment vehicles you should use for each type of Bucket. This article will give you a general overview of “how” to start filling the Buckets.
Remember that most of you who found this website probably got here as you searched for solutions to credit and debt problems, and you may not think these types of articles about saving and investing apply to you just yet. You’re thinking, “As soon as I pay off my current debts, I can start saving and investing for the future.” The problem is, the future happens BEFORE that.
Life is NOT going to stop and wait for you to get ready for it. There are no “time outs” or “hold on a second’s” in life. Whether or not you’re ready, it’s going to happen. Those things that are going to happen this next year – they’re going to happen this year. Nothing you can do about it – they’re coming.
So, are you going to be ready for them? Or are you going to be cursing and acting surprised when they do happen? Making your Bucket List and then Filling your Buckets is an absolutely practical and necessary thing for you to do. ESPECIALLY if you have debt you’re trying to pay off.
Anyone Can Create a Bucket List
So don’t think that because you’re so deep in debt that you shouldn’t start a savings plan, an investment plan, a plan for the future. It is BECAUSE you have so much debt that you need to be even more careful and smart with your money. Sick people go to the doctor to get a plan to get better. Healthy people don’t need a plan to get better – whatever they’ve been doing is working so far.
Thinking of your Bucket Lists in terms of your physical health is really a great idea. If you’re sick (in debt), you need urgent and immediate care to get over your sickness. Maybe some antibiotics, ointments, or other remedies to help you beat the current sickness will help. Healthy people don’t require such things – they don’t need help beating a temporary sickness.
But both sick and healthy people can do things to take care of their bodies better. Eating better, exercising, sleeping right, etc. You can always do things that can help maintain and enhance your physical health and help you live a longer life.
The things you are doing to pay off your old debts are like the antibiotics. You’re taking steps to defeat the illness and get you back to normal health. Filling your Buckets is like the things you can do to improve your overall health – the exercise and proper diet.
It’s Okay to do BOTH!
When you’re sick, it’s okay to do BOTH! While you try to defeat the illness, it’s okay to work on improving your overall health at the same time. If you’re not sick, you can devote your full attention towards becoming healthier.
So if you’re in debt, work on getting caught up AND work on putting yourself in position for a better financial future – all at the same time. If you’re not in debt, congratulations! You can use your Bucket Lists to create a great future for yourself – and ensure that you don’t end up with debt problems in the future.
Make your Bucket List and we’ll show you how to fill them here.
When financial times are tough, you can find solutions to your credit or debt issues. Credit to the Wise provides you with the information you need to fix your finances, buy a house, get out of debt and get on with your life!
GLENN LEACH is a proud member of the ActiveRain Real Estate Network, a free online community to help real estate professionals grow their business.
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