The Bucket Strategy: A Smarter Way to Organise Your Money

Money’s a bit like water; if you don’t direct its flow intentionally it’ll pour right out of your bank account. That’s where the bucket strategy comes in handy.

It’s a great way to separate your savings and investing from your spending, and work towards several financial goals at once. In this blog we’ll explain how the bucket strategy works, and how you can put it to work.

Most people have a few accounts and investments where all their money sits. There might be a spending account and a savings account, plus a KiwiSaver fund, with each account often doing several jobs. The savings account might hold an emergency fund, holiday money, and fun money, while the KiwiSaver might be the big retirement and house deposit fund.

Bucketing means splitting your money intentionally. There’s no single standard way to do this, but generally it involves organising your funds and investments by their purpose, by specific goals, or by timeframe.

Bucket strategies are effective because they give your savings and investments structure, matching them to your goals and investment horizons. This helps with clarity and motivation - making it easier to stay on track and maintain good saving and investment habits.

A good bucket strategy can also make it easier not to panic sell when there’s market volatility, particularly for retirees. Keeping near-term spending money separate from longer-term investments may reduce the need to sell investments at an inconvenient time or at a loss, although it can’t eliminate investment risk altogether.

There are three common ways to split your money into buckets, listed below. Many people use a combination of all three.

This strategy, popular with retirees, involves splitting your money into buckets based on when you’ll need to spend it. For example, you might have three years of spending money in an easily accessible high-interest savings account, money you’ll use in 3-7 years in conservative or balanced funds or term deposits and everything you’ll need in 7+ years in higher growth investments. Read more about how to match investments to your timeframe.

To do this, start by deciding on your goals. Figure out a timeframe and how much you’ll need for each goal, then split your money into the appropriate investments and accounts. For example, you might have a retirement investment bucket, an emergency fund bucket in savings, and a conservative investment fund for your house deposit bucket.

With Kernel’s goals feature, you can name each bucket (e.g. Japan 2028, house deposit, early retirement), set a target amount and date, then choose which investments or savings accounts count towards it. You'll see exactly how close you are, and whether you need to top it up.

Not everyone has clear financial goals, and that’s OK. You can still use the bucket strategy split by purpose. You might have a financial security bucket in defensive assets and savings accounts, an income bucket where you’re paid into and spend from, and a growth bucket with your long-term investments.

‘Custom Views’ in the Kernel dashboard is a great way to view your assets based on purpose buckets. You might keep your house deposit separate from your retirement fund, or group all your long-term money together. Each group has its own performance graph, so you can check how each bucket is tracking with ease.

There’s no one right way to split your money up. Take a look at the above options and consider what works best for your life stage, and makes the most sense for you.

There are a few common rules of thumb worth knowing when it comes to setting up your buckets and finances

Start with identifying your goals or purpose like we covered above, and then pairing them with the best financial product for your timeframe, or in other words, when you’ll need the money:

• Money you’ll need in 0-3 years: is suited to less volatile investments and accounts. For example, savings accounts and cash funds.
• Money you’ll need in 3-7 years: could go into slightly more volatile investments, with some defensive assets, an example is the Kernel Balanced Fund.
• Money you’ll need in 7-10 or more years: you could consider higher growth investments, such as the Kernel High Growth Fund, the NZ 20, or even shares and ETFs.

While your time horizon can help guide asset choice, remember that investing does involve risk so always consider your risk tolerance when making these decisions.

Lastly, it's a great idea to automate contributions, so your buckets can keep growing without taking up too much time or brainpower. To do this, decide how much you’ll need to contribute to your bucket per pay cycle to reach your goal, then set up an automatic payment that goes out of your bank as soon as you’re paid and an auto-invest into your chosen funds.

The Barefoot Investor is also a big fan of the bucket strategy and goes into it in great detail in his book. This is an excellent place to start if you’re new to the bucket strategy.

We also go into more detail on how to organise your money and use variations of the bucket strategy in different life stages in the below guides:

• Planning for retirement in NZ
• Investing in every decade: From your 20s to your 60s
• How to save money effectively in NZ
• How to set up an emergency fund

Kernel Wealth Limited is the manager and issuer of the Kernel KiwiSaver Plan and Kernel Funds Scheme. A Product Disclosure Statement is available at Kernel Wealth | Resources & Documents. Investing involves risk including the possible loss of principal and there is no assurance that the investment will provide positive performance over any period of time. The information provided should not be relied upon as investment advice or recommendations and should not be considered specific legal, investment or tax advice.