I would like to share with you how I save money using the four bucket system. The four bucket system is an imaginary system of buckets where I place my money. These four buckets are: Expenses, Savings, Investments, and Tithes.
Every time I receive money, whether this is my monthly salary or an honoraria from a speaking engagement, I divide the money into four buckets. The first bucket is called Expenses. I allocate 50% for this bucket. Let's say I received $1,000 monthly salary for the month of January, my first bucket is allocated $500. This bucket I use for my daily expenses which includes food, gasoline, housing, cosmetics, toiletries, payment for loans, and clothing.
The second bucket is called Savings which is 20%. For a $1,000 monthly salary, this means that I allocate $200 for this bucket. I would highly recommend that you open a separate saving account with passbook in another bank. In this manner, you are able to separate this amount from your expenses. If your bank issues a passbook with an ATM card, I would suggest that you keep the ATM card so that you will not be tempted to withdraw the savings.
The third bucket is called Investments. I allocated 20% for this bucket. For a $1,000 monthly salary, $200 goes to Investments. This bucket is for my personal insurance, money market, and other bank investments.
Finally, the fourth bucket is for Tithes at 10%. I am a firm believer that 10% or more of what we receive should be returned to God. Should I receive $1,000 monthly salary, $100 goes to tithes. I donate this amount to my church or give this to charities. God loves a generous giver. And He will bless you more.
At the end of the year, I have $2,400 for savings and another $2,400 for investments. If there is a 13th month pay and bonuses given on December, my savings and investments increases as well. My church and charities are also thankful with my donations which amounts to $1,200 per year.
On a monthly basis, I am reminded to fit my day-to-day budget based on my Expenses bucket.