I take big goals and break them down into little ones.

Everything is more approachable that way. And saving money is no different.

Savings is a critical piece of our wellbeing. We all agree on that.

But most savers make a huge mistake just trying to do the right thing.

They think about "saving" as a singular goal.

So they throw "savings" in a bank account and check the box "done"

But you can't think about your savings in one big bucket. You'd miss out on a massive opportunity to accumulate wealth.

You want to save separately for the different seasons of life.

I divide my seasons into three buckets.

Each bucket has a different purpose, and I apply a different strategy.

Today I'm going to share my simple savings strategy with you.

Here's the basic structure:

These buckets play different roles, and they're on different schedules. So I don't treat them the same. Here's how I manage them individually.

Short-term Savings

This bucket is for cash I need in the next 12-24 months, and I keep it in a high-yield savings account.

Don't let the name fool you. "High-yield" is a misleading descriptor. Interest rates on these accounts are terrible, and your money can't grow in a savings account.

But cash reserves are necessary. I just limit this bucket to what's really necessary. No surplus.

If you're trying to decide how much cash to keep in your savings account, check out this article I wrote about that.

Long-term Savings

This bucket is money I save for "retirement" in vehicles like 401Ks and different kinds of Individual Retirement Accounts (aka IRAs).

When I put money in retirement accounts, I'm rewarded with tax benefits.

But there's a catch. Well two, actually.

1. Retirement accounts in the US are designed so you can't use the money before age 59 1/2. If I dip into this bucket early, I have to pay harsh penalties.. So this money is hands-off.

2. Because there are tax benefits associated with retirement accounts, there are limits to how much you can contribute each year.

I contribute the maximum allowable amounts every year.

Once my short-term bucket is full and my retirement contributions are maxed out, I've got a big space in between. And that's where my favorite bucket enters the picture.

Medium-term savings 💚

The medium bucket is where the magic happens. And most people ignore it!

This is where your money can grow meaningfully. This is how you save up for that big downpayment on a house or buy a boat or retire early, or whatever you're hoping to do.

This bucket is for all the money between short-term cash and age 59.

My medium-term bucket is my biggest by far, and all that money is invested in in the stock market. I add a percentage of our weekly income to this bucket every Friday.

The medium bucket is special, for several reasons:

First, I can invest as much as I want. There are no limits to how much I can invest, like my retirement accounts.

Second, I can sell whenever I want. I'd hate to sell any of my stocks right now, but if I needed cash, the option is available. Stocks are considered liquid assets because it's easy to sell them fast and get the money (unlike owning a house, for example).

I'm comfortable keeping my bank savings account at a minimum because I could sell some stocks if I needed money fast.

And lastly, I can reasonably expect 25x the returns from my stock investments than I'll get from my high-yield savings account. The difference is astounding.

My investment account has returned 16.74% over the last 18 months. Compare that to my .4% interest rate on my savings account.

Bottom line: Build Your Medium Bucket

I'll leave you with a short summary:

My order of savings operations goes like this:

1. Define short-term cash requirements and fill up that bucket.

2. Max out retirement contributions every year, asap.

3. Dump everything else in the middle bucket.

If you need some help setting up your medium bucket, I can help you.

I offer personalized coaching sessions that transform bank savers into medium bucket builders.

💸

Book A Call With Me

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