Ahoy, and welcome to my second article for the Bulletin! This article is a continuation of my first piece of work “How to get and secure the bag” and takes a deeper dive into tips and tricks for personal finance, namely focusing on how students may build a simple budget.

So without further ado, let’s get stuck into it. Oftentimes people associate the word budget with a stout middle-aged man with square glasses ferociously entering his forecast expenses into an Excel spreadsheet… Oh, just me? Well, let’s move on from that, the point of this article is to hopefully show you that budgeting as a student doesn’t have to be as laborious or difficult as people make it out to be.

The saying “Keep It Simple Stupid” particularly applies here. I feel that simplicity is a good principle to abide by when constructing a budget, and Scott Pape, author of “The Barefoot Investor” agrees. He suggests that if you cannot write your financial plan or budget on a napkin, or easily explain it to your Nana, it’s unlikely to be successfully implemented in the long term. To this end, Scott has been very helpful as he has constructed a Bucket Budgeting framework that ordinary people may use to take control of their finances. The purpose of the bucket framework is to assign a purpose to each of your bank accounts. This purpose will give you greater ownership and control over your wealth.

Scott uses the analogy that your income is like water flowing from a garden tap. You can collect this water in buckets (bank accounts), or you can let it slip your hands and wind up in the dirt (not nearly as desirable). So, let’s examine the recommended roles of these buckets/accounts. The three main buckets are termed “Blow”, “Mojo”, and “Grow”.

The Blow Bucket

The “Blow” bucket is where 100% of your take-home pay flows into. In practice, this may take the form of a bank account which your Student Allowance/Loan/Wages (income) are paid into. From this “Blow bucket”, your day-to-day expenses are paid. However, if you can reduce your expenses and increase your savings, then more power to you. Also, Scott recommends that the “Blow” bucket should be a fees-free everyday transaction account to mitigate the risk of being charged unreasonable fees

From your “Blow” bucket, money flows into three further buckets (accounts):

• Splurge: This is a short-term savings account for small-ticket treats for yourself like new shoes and a cozy quarter-zip jumper, or some snacks from Munchy Mart

• Smile: This is a long-term savings account for bigger-ticket items, like an overseas getaway, or a smartphone upgrade

• Fire extinguisher: This account acts as an emergency fund for yourself, and true to its name, should only be dipped into when there is an emergency. Examples of emergency expenditure may be unforeseen healthcare issues, vehicle maintenance, or the payment of rent if you are without work for a period of time

The nominal allocation of income to each of these accounts is a 10/10/20% split, respectively. However, with the Fire Extinguisher account, once it has been topped up with 3-4 months' worth of expenses, then this allocation may be redirected to your Mojo bucket (explained later), as 3-4 months of funds saved up in preparation for an emergency should be sufficient for most issues.

The Grow Bucket

The “Grow bucket” is where a set percentage of your wages and employee contributions are deposited. For Kiwis, this takes the shape of your KiwiSaver. It is important to note that you do not need to deposit any finances into this bucket manually. This is because your KiwiSaver finances are automatically subtracted from your taxable income before you receive your take-home pay, and invested into your selected KiwiSaver fund. Your KiwiSaver is an incredibly important resource and if you are unsure who your provider is, I highly recommend you find out. It’s super simple, and I’ve given some helpful hints on this topic in Edition 33 of the Bulletin if you’re interested in reading up on this further.

The Mojo Bucket

The “Mojo” bucket is where it gets exciting. This is where your confidence in your finances can truly shine, and aptly why Scott coined this the Mojo bucket. Ideally, this account should be with another bank institution to disincentivize your withdrawals from this savings account and to mitigate this money mixing with any of your other accounts. This account should also be fees-free and should aim to maximise returns on your savings.

As of 2022, the best savings account for students that I could find that satisfied both of these criteria is The Cooperative Bank’s Dosh Account which gives you a guaranteed 2.5% per annum on every dollar you save up to $4,000, regardless of any withdrawals. In comparison, ASB offers 1.05% on their FastSaver account (but only if you do not withdraw) and BNZ offers 1% (with one free withdrawal per month) on their highest return savings accounts for students.

Conclusion

Given that we as students live fairly chaotic lives, it can be useful to assign roles to our financial accounts to prevent our wealth from being spent whimsically. Further, by assigning percentage values of your income to your accounts, as opposed to gross figure goals, you can have greater confidence that you are saving the most with the resources that you have. I hope you have extracted some value from this brief summary of Scott Pape’s Bucket Budgeting concept and I wish you the very best with your personal finance adventure!

Disclaimer: This article is not personal financial advice from the author! It serves as a summary of "The Barefoot Investor: The Only Money Guide You'll Ever Need" by Scott Pape.

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