Money buckets

Save for fun and necessities

[January 27, 2010]

Todd and Lisa Duffy don't have to wonder where they'll get the money when their car needs a tune-up. They take it from an STCU savings account they've labeled "auto maint."

If their three kids need new coats, there's money in an account labeled "clothing." And when the Duffys go out without their children, they tap into yet another savings account, labeled "sitter."

In all, the Duffys have 14 designated S1 savings accounts, with names like "gifts," "licensing," "fuel," and "camping." Portions of the family's income are automatically deposited into each one every month, based on the family budget.

"If we don't have money in an account, then we don't spend on that item, or we have to decide where it's going to come from," said Lisa Duffy. "It makes us think."

The Duffys came up with their plan after hearing a financial educator talk about the "money envelopes" that many families use to designate portions of their income for specific expenses. Others call the system "money buckets."

A growing number of people, like the Duffys, have decided to use STCU accounts instead of envelopes so they don't have cash lying around, can earn dividends, and can make transfers and pay their bills electronically.

Whether with envelopes or accounts, the system is all about being deliberate about saving and spending. If a skier expects to pay $300 for a season pass, he puts $25 a month into an envelope. If a family budgets $3,000 on an annual vacation, then they must set aside $250 a month for that purpose.

"It causes you to be more disciplined," said Vicki James, a Spokane Valley resident who started using designated S1 savings accounts about 15 years ago, when she was on a very tight budget. "But when you reward yourself by going to have a nice dinner or go to a movie, there's no guilt, the money is there."

The plan works best if families establish emergency accounts to cover expenses that truly cannot be anticipated, said Jamie Dedmon, one of two STCU business development officers, both of whom teach financial education classes. That emergency fund should be built up gradually until it amounts to six months' salary, in case of lost income. And it shouldn't be tapped for non-emergencies, no matter how tempting.

"If you need $1,200 for the holidays, it shouldn't come out of your emergency savings account," but out of an account designated specifically for that purpose, Dedmon said. And if setting aside $100 a month proves too difficult, "then it's a sign that you should pare back on your Christmas spending," she said.

The system can be used to take care of recurring expenses. James, for instance, has accounts labeled "animal care," "utilities," and "property taxes," among others. But they can also be used to fulfill longterm goals.

For instance, you might start a designated account for travel. More than two dozen STCU members have labeled savings accounts as "Disney" or "Disneyland," STCU records show.

You might set one up for a dream purchase, like scores of STCU accounts members have labeled as "Boat," "Sailboat," "Jet boat," or "Houseboat." Some members who yearn for the open road have accounts labeled "Harley."

Or you might set aside money every month in anticipation of a special event, like the dozens of members who have accounts labeled "wedding." If they're consistent, those folks can enjoy the big day without worrying how they'll pay the caterer.

There's nothing that says you can't change your mind about the purpose of the accounts you set up. That Disneyland account might become "Paris" as the kids get older. You might develop seasickness and change that "Houseboat" account to "Winnebago." You might decide to elope, and use your wedding account to make the down payment on a house.

James, a master gardener who grows much of her own food, said she's learned that designated accounts are a great tool in good times as well as lean.

"Keep putting money in there," she said. "After a while it builds up."