When it comes to managing your wealth and pursuing your financial goals, clarity can be key. Enter bucketing, a powerful strategy that helps simplify your financial planning by categorizing your assets into three time-based buckets: today, tomorrow, and the future.
What Is Bucketing?
At its core, bucketing is a strategy to help align your wealth with your financial goals and time horizons. By dividing your investments into these three buckets, you help create a clear plan for how and when your money will be used.
Today Bucket
- Time horizon: 0–2 years
- Purpose: Immediate needs, daily expenses, and short-term goals
- Investments: Cash accounts, savings accounts, short-term bonds
This bucket is designed to help provide stability and gives you more access to funds for essential needs without worrying about market volatility.
Tomorrow Bucket:
- Time Horizon: 2–10years
- Purpose: Medium-term goals and lifestyle expenses
- Investments: Bonds, income-producing strategies, lifestyle portfolios
Designed for moderate growth and income, this bucket can help you navigate intermediate needs while managing risks like sequence of returns.
Future Bucket:
- Time Horizon: 10+ years
- Purpose: Long-term growth and legacy goals
- Investments: Equities, diversified growth-focused strategies
With a more aggressive allocation, this bucket aims can help grow your wealth for future aspirations and with a goal to endure financial security.
How Does Bucketing Work?
The idea behind Bucketing is it leverages mental accounting, a concept popularized by Nobel laureate Richard Thaler, to help you organize your finances intuitively. By assigning clear purposes and timelines to each bucket, you help minimize behavioral risks — like selling assets during market dips — with the goal of helping your investments align with your priorities.
This method can also address the challenge of managing cash flow during retirement, helping safeguard against taking money out during a market downturn, with the goal of optimizing your portfolio for long-term growth.
Benefits of Bucketing
There are several benefits of using the bucketing method of financial planning, including:
- Simplicity and clarity: Easily visualize your financial plan and understand the role of each asset.
- Risk management: Helps align investments with time horizons to help minimize market risks.
- Behavioral comfort: Helps reduce anxiety by preparing for near-term volatility and long-term growth.
- Personalization: Tailor the buckets to match your unique goals and needs.
Implementing Your Bucketing Strategy
Your financial advisor can play a critical role in shaping your bucketing approach. By evaluating your risk tolerance, goals, and timeline, they can recommend the right mix of assets for each bucket.
For example, while a younger investor might prioritize growth in their Future Bucket, someone nearing retirement may shift focus toward stability in their Today and Tomorrow Buckets.
Take Control of Your Financial Future
Bucketing isn’t just about dividing your wealth—it’s about giving purpose to every dollar. Whether you’re planning for retirement, funding your child’s education, or building a legacy, the bucketing strategy can help you stay on track keeping your financial dreams in mind.
Ready to start your bucketing journey? Contact your financial advisor today to create a personalized plan that works for you.
