You would select which accounts to use for buckets based on their  
type.  Those accounts that provide money to you to spend on a monthly  
basis should be included in the bucket system.  These accounts would  

Checking accounts
Cash accounts

As far as credit cards are concerned, some you might include, and some  
you might not include.  If the card you use is used for your spending  
throughout the month, and you pay off the card each month, you would  
include the credit card in your bucket system.  If it's a card you  
don't use anymore and that you're paying off over time, you would not  
include this card in your bucket system.  I do not personally  
recommend having a hybrid card which you continue to use but are not  
paying off the balance.  Using the bucket system to track the expenses  
on this card can get complicated.  However, it is doable, and if this  
is your situation, let me know.

As far as savings and money market accounts go, some people include  
them, and some do not.  To explain the advantages/disadvantages of  
each approach requires me to back up just a little bit.

Using the bucket system assures you that when you make a purchase and  
do not exceed the bucket amount for the category purchase you are  
making that you actually have the money to spend on that purchase.   
This guarantee is different that just checking the account balance to  
see if you have money in the account before buying something, because  
having money in an account is not guarantee that it is available--it  
may be needed for insurance, mortgage payments, bills, or groceries  
later that month.  Using the bucket/envelope system allows you take  
all the cash you have on hand (including money in certain kinds of  
accounts) and dedicate it toward certain kinds of purchases.  If you  
don't exceed the bucket amount, you can be assured that the money is  
available for that type of purchase without encroaching on other  
planned expenses.

What the bucket system does not guarantee, however, is that you  
actually have money in a given account.  Because you are combining  
your cash accounts and your checking account, and perhaps others, as  
well, it could be the case that the bucket money is not actually in  
the account you're spending from.  Let me provide a simple, but absurd  

Cash: $5000
Checking: $50

The total money you have available is $5050, which you can distribute  
between your buckets.  Suppose you decide to allocate $500 in  
groceries.  As you can see, this money is not actually in your  
checking account, and if you were to pay using your debit card, you  
would over draw the account.  While it is true that you have the money  
to pay for $500 worth of groceries this month, you do not actually  
have the money in a particular account.  While this example borders on  
the absurd, you can see how adding multiple accounts can provide a  
practical example where you can't just look at bucket balances, but  
you would also need to be aware of or check your account balance  
before making a purchase.

So, back to why some people choose to include a Savings account in the  
bucket system and others do not.

First, the case for/against including the Savings account in your  
bucket system.  When you include your savings accounts and money  
market accounts in your bucket system, you're able to track the money  
that is in the account with buckets.  This setup avails itself to  
setting aside money that is for future or infrequent purchases where  
it can accrue a greater return rate than it can in a checking  
account.  The case against this setup is that you do need to be aware  
of your checking account balance prior to spending money to be sure  
that you are not going to overdraw the checking account.  It's  
possible that if you have multiple payments in December, including  
your insurance premium, Christmas presents, vehicle registration and  
taxes, etc, you could use a significant amount of money from checking  
and you would need to make a hefty transfer before finishing the month.

Now, the case for/against not including your Savings account in your  
bucket totals.  The case for should be pretty obvious.  Typically, the  
bulk of the money in your buckets would be stored/saved in a single  
checking account if you don't include a savings account.  Generally,  
if you don't run your balances to close, then you wouldn't need to  
concern yourself with the checking account balance before you made  
purchases.  You would only need to know what the bucket balance is.   
Since spending less than your bucket balance guarantees you won't  
exceed the money you have available, and since most of the money you  
have available is in your checking account, it follows that you  
probably won't exceed your checking account balance when you make a  
purchase that doesn't exceed the bucket balance.  The case against  
this type of account is that it is difficult to use the account to  
save for different kinds of purchases.  This setup doesn't allow you  
to know what the money in Savings is for.  You would 1) need to track  
what the money is for separately or 2) just use the Savings account  
for emergencies, or 3) have a separate Savings account for each type  
of expense.

I actually have a Savings account that I include in my bucket totals,  
and a Money Market account that I do not include.  The former I use  
for expenses I save for throughout the year, such as Christmas gifts  
and vehicle registrations.  Therefore, I want to use the buckets to  
track the amount of money I have available for each type of expense.   
This allows me earn a little bit of interest throughout the year on my  
money.  The latter is strictly for emergencies.  I do not need to  
track the type of expenses in this account, so I just use the account  
balance to tell me how much I have to spend on an emergency.

Other accounts that you would not include are loans that are paid off  
over  a period greater than a month (auto loan, home mortgage, etc)  
and investment accounts.  While you won't include all your accounts in  
your bucket system, you can still track those account balances within  
MoneyWell.  You just won't assign transactions in those accounts to  
the buckets.

Once you have decided which accounts to include in your spending plan,  
you're ready to finish setting up your MoneyWell document.  You're  
ready to determine how much money you have in your buckets.  This is  
total of all the accounts you have chosen to include in your bucket  
system (you would subtract credit card balances that you choose to  
include, this is because a credit card balance effectively reduces the  
amount of money you have on hand if you plan to pay off the balance  
each month).  This is an excerpt from a post I made earlier today that  
may help clear the water:

Here's how I set up my MoneyWell document in order to keep all this  
stuff straight:
First, I decide how much cash I have on hand to fund my spending  
plan.  Some people might prefer to include Savings accounts balances  
in this formula, others may not.  You would also include the balance  
on certain kinds of credit cards.  Any credit card that you use on a  
recurring basis each month, paying the balance each month should be  
included in this formula as well.  I refer to these as Spending Plan  
Accounts.  I might also refer to it as cash on hand/cash available.
Second, I decide how many other accounts I want to track in  
MoneyWell.  This could include additional Savings accounts, money  
market accounts, credit cards (accounts I don't pay off each month),  
auto loan balances, retirement accounts, home mortgage, etc.  These  
accounts affect my net worth and are of enough concern to me to track  
on a monthly basis, but they do not contribute to the money that I  
have on an on-going basis to pay for groceries and other monthly  
I'll set up the MoneyWell document like this:

                Spending Plan Accounts
                Other Accounts

        Note:  The -------------------------- above is an account that I use  
as a divider between the two types of accounts that I simply provide  
the name of multiple dashes.

Setting up MoneyWell in this way provides a quick reminder to me how I  
should assign to transfers to buckets.  There are three rules to follow:
When transferring funds on the same side of the line, do not assign  
the money to a bucket on either side of the transfer
When a transfer crosses the line in a downward direction (from a  
Spending Plan Account to an Other Account), assign the withdrawal side  
of the transaction to an bucket.  This money is treated as though it  
is being "spent" by your cash available on your other other accounts
When a transfer crosses the line in the upward direction (from an  
Other Account to your Spending Plan Account), assign only the deposit  
side of the transfer to a bucket.  This money is being treated as  
income from your other accounts into your cash available.

There are two rules for spending money:
When spending or depositing money from/to an account that is above the  
line, you always assign the transaction to a bucket.
When spending or depositing money from/to an account that is below the  
line, you never assign the transaction to a bucket.  In MoneyWell,  
you'll need to select "make bucket optional" on the transaction so  
that it isn't identified as an unallocated expense.

Let me provide a few practical examples.  Here is a sample setup.

Checking Account
Credit Card 1
Savings Account 1
Savings Account 2
Credit Card 2
Auto Loan
Retirement Account
Home Equity Line of Credit

Note that at all times the total amount of money in all your buckets  
(income and expense) should equal the amount of money in the accounts  
above the line (Checking Account, Credit Card 1, Savings Account 1)

You buy groceries that you have accounted for in your spending plan  
with you Checking Account debit card.  You'll assign this transaction  
to a bucket (Spending Rule 1)
You go to movies using Credit Card 1.  You've planned for this expense  
in your spending plan, and you'll assign this transaction to a bucket  
(Spending Rule 1)
Your retirement account grows in value--you will not assign this  
deposit to a bucket.  The money you have to spend on a monthly basis  
has not changed, only your net worth has changed (Spending Rule 2)
Interest is assessed against your Home Equity Line of Credit.  You  
will not assign this expense to a bucket.  This has not effectively  
decreased the amount of money you have to spend each month (though you  
may need to consider making adjustments and increasing how much you  
allocate towards debt reduction).  Spending Rule 2
You make a credit card payment from Checking Account to Credit Card  
1.  You should not assign either side of the transfer to a bucket (you  
didn't cross the line).  The amount of money that you had available to  
spend during the month hasn't changed.  You still have the option to  
make monthly expenses on your Credit Card 1 or your using your  
Checking Account (Transfer Rule 1)
Why do I have two credit cards?  One credit card you might be using  
and paying off each month (Credit Card 1).  The other credit card  
(Credit Card 2) may have a balance that you'll pay-off over time.   
You'll treat this account like a loan account and use a debt reduction  
expense bucket to track allot payments to it.  You would not want to  
use Credit Card 2 anymore for your spending plan purchases.  Treat it  
like a loan and just pay it off, but do not charge anything on it.   
When you make a payment towards Credit Card 2, you'll need to assign  
the withdrawal side of the transfer to a bucket.  You may need to  
adjust balances inside of Credit Card 2 to accurately reflect the  
outstanding balance after interest is applied (Transfer Rule 2)
You set aside money from Checking Account to Savings Account 2.  You  
assign the withdrawal side of the transfer to a bucket.  This  
effectively reduces the amount of money that you have available to  
spend in the month (Transfer Rule 2)
You make a car payment from checking.  You assign the withdrawal side  
of the transfer to a bucket.  You may have to additional adjusting  
your Auto Loan account to accurately reflect the amount by which your  
auto balance has decreased (Transfer Rule 2)
Why do I have two Savings Accounts listed above?  In order to take  
advantage of higher interest rates, you might have a Savings Account 1  
that you use to make frequent money transfers during the month, but  
you consider the money in this account available for monthly expenses  
and you track it using your spending plan.  I use such a Savings  
Account for Christmas Gifts, Insurance premiums, tax vouchers.  In  
general, any type of expense that I need to save for multiple months,  
I'll set aside in a Savings account.  Since I want to track the money  
that I have in Savings with buckets, I'll keep it above the line.  I  
estimate how much money I actually spend on a monthly basis, and I  
transfer what ever is left to Savings Account 1.  This transfer is not  
assigned to a bucket.  If I make an insurance payment, I might need to  
transfer some money back to my Checking Account to cover the amount.   
This transfer is not assigned to a bucket (Transfer Rule 1)
When you make an investment into your Retirement Account from  
Checking, you'll assign the withdrawal side of the transfer to a  
bucket, reducing the amount of money you have to spend (Transfer Rule 1)
When you retire and are ready to start paying yourself from your  
Retirement Account, you'll transfer money from Retirement Account to  
Checking, assigning the deposit side of the transfer to a bucket.   
This will increase the amount of money that you have to spend  
(Transfer Rule 3)
When you increase your Home Equity Line of Credit balance in order to  
pay for an emergency, you'll create a transfer from your HELOC to your  
Checking Account.  This effectively increases the amount of money you  
have to spend, and you'll assign the deposit side of the transfer to a  
bucket (Transfer Rule 3)

I hope this helps clarify things.

Grace to you,
Blair Watkinson

On Jun 9, 2009, at 5:17 PM, Daniel wrote:

> Should I be using the buckets for all of the accounts (ie. checking,
> savings, cash, credit cards, etc.), or should I just use it for my
> checking account? I'm a little confused by this, and wonder how I
> would use the buckets for accounts such as cash or credit cards.
> Thanks!
> Dan
> >

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