How to Manage your Money with The “3-Bucket” Solution?

By: Sunny Lei 5 min read

The 3-Bucket Solution is simple to learn and to implement.

The 3-Bucket Solution, runs on autopilot, and puts your money where it’s supposed to go so you don’t have to worry about it. AKA “wealth management.”

My entire money management plan consists of dividing my income into three “buckets”:

  1. A Blow Bucket, for daily expenses and the occasional splurge to put a smile on your face.
  2. A Mojo Bucket, to provide some “safety money”.
  3. A Grow Bucket, to build long-term wealth and total security
Credits: Scott Pape

It’s basic, and that’s why it works.

The conventional advice from finance experts – “set up a budget to track your spending” – is an incorrect mindset.

Using willpower to force yourself to stick to a rigid budget, day in day out isn’t sustainable.

According to a humanity case study by Roy Baumeister, will power is a limited resource and is hard to strengthen after depleting it.

Barack Obama has a habit of limiting its will-power and energy usage on small decisions to better prepare himself for big decisions that he needs to make throughout the day. He once said:

“You’ll see I wear only grey or blue suits. I don’t want to make decisions about what I’m eating or wearing because I have too many other decisions to make.”

– Obama

Therefore, the “better” wealth management scheme is to develop better daily routines and habits instead of sticking to a rigid budget which is just not realistic.

Breaking down The Blow Bucket

The purpose of establishing the Blow Bucket is to specifically quantify how much you “need” to spend and how much you “can” spend each month.


 

With the establishment of The Blow Bucket, you are allocating money for guilt-free splurges for stuff that put a smile on your face.

Here’s the big picture of how you would break down your total income:

Daily Expenses: 50%

Splurge spending: 10% (Guilt-free money)

Long-term investment: 20% (Goes toward your retirement)

Emergency fund: 20% (To put out fire when there’s a cash emergency)

My benchmark for daily expenses is 50% of my total income.  If 50% of your total income is insufficient for your daily expenses, feel free to allocate more money from your Blow Bucket from your Grow Bucket.

It is not necessarily bad if you require more than 50% of your income for daily expenses. But, if you have some money to spare, consider allocating it into your Grow Bucket.

The rule of thumb is:

Make sure you have enough money allocated for your necessity expenses while making sure you’re allocating at least 20% of your income into your MOJO each month.

The MOJO Bucket (safety bucket)

The purpose of putting money in your Mojo bucket is to not have to stress about money when there’s an emergency.  This bucket gives you financial security and confidence when you need it the most.

However, The MOJO Bucket should not be linked to your daily spending account as it is only used for emergencies such as losing your job, getting sick, or your house burning down.

Fill up your MOJO bucket with $2,000 USD to start and leave it in a high-interest savings account. (Let the compound effect do its magic)

If you don’t have $2,000 USD to spare, this is where you want to do whatever it takes to earn that money.

Ex: work extra hours, side hustle, sell things you don’t need on eBay, garage sale, or become an uber driver.

(Want to learn more about side hustles? Read more here.)

How big should the MOJO Bucket be?


To determine how much money is sufficient for you MOJO Bucket, figure out how much do you spend for a year.

In the short-run, your MOJO Bucket’s cash should cover a year of your spending. In the long-run, you want your MOJO Bucket to cover 3+ years of spending.

The Grow Bucket

After you’ve settled your MOJO and your Blow Bucket, it’s time to focus on building long-term (LT) wealth.

To build LT wealth, you’ll have to focus on saving and investing your money instead of spending.

I love this quote from Warren Buffet: “If you buy things you do not need, soon you will have to sell things you need.”

The purpose of The Grow Bucket is to get a little wealthier each day. It’s not something that’ll make you a fortune but over the long run it will empower you with the feeling of being financially free.

Learn more about “how to start investing” here

Managing your money should only take 10 minutes a month

At the end of each month, you should self-reflect or with your partner. Is your financial situation aligned with the 3 Buckets Solution’s values?

Can you see how using the “3-bucket” method is easier and more time-efficient?

How do you manage your money? Is it something similar to the “3-Bucket Solution?”

Let me know down in the comments, I would love to hear your story!

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