Dan Lok’s 5 Bucket Money Management Theory: How to Manage Money
Money, the one must seeked thing in the world. The vehicle of economy, money is the center piece of all trade and economic activities. In today’s world money powers survival.
Some of you might be working full time now. While some of you might be in college, doing some part-time work.
Perhaps you just got your first job just now. You have some money coming in.
Then how do you manage the money that you are currently earning?
Because the thing is,
It is not about how much money you make. It is about how much you keep and how well you use (invest) that money.
Here is Dan Lok’s five bucket money management. This theory has been originally referenced from the book “The Richest Man in Babylon.”
In this theory, total monthly income is divided into 5 buckets and used accordingly.
Here are the five buckets:
Bucket 1: Necessity Bucket
The first bucket is a necessity bucket. This is where you pay your general bills from. This is the money you buy your food and clothes from.
Each month put 60 percent of your total earning in this bucket. Every dollar that comes in, 60 cents goes to this bucket.
For every 1000 RS you earn, 600 RS goes in this bucket.
Pay your electricity bills, water bills, internet, fuel and all that stuff from this bucket.
Bucket 2: Emergency Bucket
The second bucket is an emergency bucket. It means you use this money in an emergency.
You will put 10 Percent of your monthly income in this bucket. Every dollar you earn, 10 cents goes into this one. For every 1000 RS, 100 RS goes into this.
You use this money in an emergency occurrence only. You could get in to medical emergency. Something happens to your family, you will need to use this money.
Emergencies can happen at any time. That is why we call them emergencies. Something bad happens suddenly, you want to have that money there. So don’t touch it for any other purposes.
Bucket 3: Investment Bucket
The third bucket is an investment bucket. This will eventually be your retirement fund.
This is also 10 Percent of your monthly income. For every dollar, 10 cents. For every 1000 RS, 100 RS.
You will use this money to buy stocks, invest anywhere with a safe return.
Here, you are not to be greedy. Don’t keep looking for any scheme with a high return policy. 10 to 15 percent of return should be satisfactory enough to invest. The compounding will have you enough money for you to retire.
Bucket 4: Learning Bucket
The fourth bucket is the learning bucket.
This is also 10 Percent of your monthly income. For every dollar, 10 cents. For every 1000 RS, 100 RS.
You use money to learn new things and improve your skills. You pay for coaching, events, seminars, online courses etc with this money. Buying a new book, this is where you take the money from.
Learning will improve your income skills and will ultimately compound to your income.
Bucket 5: Fun Bucket
This is the last bucket, but not the least. It is a fun bucket. Sounds good, eh?
This is also 10 percent of your monthly income.
You save money to take that vacation you have always wanted in this bucket. You can buy your favorite watch from this money. You attend that favorite artist’s concert with the money from this bucket.
This way, you will not feel any guilt. Because you will not touch any other money for those things.
Habit
Some of us might not earn enough money to fill the actual bucket of necessity. What do we do in that case scenario?
The actual purpose of this bucket money management theory is to make a habit of managing money. If you can not do 10 percent for each of the last four buckets, you can do 5 percent. That is 80, 5, 5 ,5 and 5. Even 2.5 percent, if you think you earn very less.
The point is you have to have a habit at place to manage your money and use it with optimum utility.
Because if you don’t have such a habit, however much the money comes in, it will go away without you even knowing it. And you will have nothing when you cannot work anymore.
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