The Three Buckets of Money Management

If you're watching this live welcome, fantastic, thank you. Hopefully you get some value out of today's discussion. If you're watching this on the recording, feel free to check out there's a stack on there. We're growing this every fortnight. So let me know if you have any questions or if you wanted to discuss any of the topics we've covered in this series, we are currently working through the fundamentals of finance series, part of the episodes we're putting together, and we're all about building those fundamental blocks that people can rely on to build some really solid foundations for their financial picture.

As some of you may know, this is a bit of a, an experiment, but a process we're working through where we're building a library of knowledge and technical information for people to manage their own finances. Of course, if you do want any further assistance, feel free to reach out. But my goal with this series is to give you the tools to really spruce up your own financial future. So today's presentation is all about the three buckets method, method of managing your money, managing cash, trying to keep things easy, a big philosophy of mine is if this is too complicated, then you're not going to do it. And if you're not going to do it, you're not going to receive the benefits of the process. So we try to keep things simple.

Disclaimer disclaimers for today. Nothing we're talking about here is advice, we probably get a bit closer to the line here than we have in some of the other presentations. So I will flag that. But definitely do not do anything. make any drastic changes to your financial circumstances without seeking independent advice. Although if it's just improving the budget, by all means hop in. And we are recording today's session. So this will be chopped up popped up on YouTube all the usual sort of things we like to do to get this information out there for people to start or keep making really good financial decisions.

So where are we starting off first, with the three buckets, it is really meant to be another jigsaw piece in the puzzle that is our financial picture that we're making. So it's yet another jigsaw piece. So if you look through the presentations we've done so far, we've covered the financial freedom pyramid, we've covered the five basics of money management, we've talked about Ramsey's six baby steps, the steps people can take to start taking back control of their financial picture. And today we're exploring the three buckets in future webinars. We’re going to hit some more of the big jigsaw pieces that people can use, the Debt Snowball, the savings ratios, and the basic power of compounding. And the idea of this being a jigsaw as these are the edge pieces that we will start with so we can get an idea of the picture. Not having the edge pieces in place makes life a lot harder, makes it a lot more difficult to work out what you're doing and the picture you're trying to create. And the reason we're doing all of this potential is where you want people to be intentional around the choices they're making with their money. So that's a big factor in what we're recommending. And what we're working on is helping you be really clear and really intentional with how you're using your money. So three buckets. This idea has stemmed from an older one that's been around for a little while, used to be version 1.0 was about how to allocate the money you have. So for people in retirement, this idea came out of an American financial planner in the 80s. And the idea was you ended up having three pools of your money set up to hold different amounts of money for different times and different requirements.

So three buckets the first bucket was your immediate access, rainy day need the money today. Accessible bucket. So bucket number one had two years’ worth of living expenses in there. It was in a cash account or an add call account with very low rates of interest, but incredibly low risk essentially risk free, was really accessible and is what people lived on in their retirement plan. So the first two years of retirement to retire in 65. The first two years you would draw down on bucket one. Meanwhile, bucket two then has another three to five years’ worth of living expenses put aside. This has invested in lower risk investments, but still with some potential growth and upside, and probably a bit of volatility. Now with volatility and investments, and this is part of a latest series we'll be coming to the best approach or management technique for writing volatility in an investment is increasing the time span you're in there. So shares are a classic example day to day they move around a lot month to month the moves are a little bit less impressive, year to year, decade to decade, they smooth out and you get to experience the full upside of those returns.

So bucket two is very much lower risk but still has some growth potential and you can access it if you need to. But like a term deposit, if you access it, you'll probably lose out a little bit. So it's a little bit less appealing to access this money. But it is there if you need it. Now over time, the returns coming out of this bucket, top up bucket number one. So you can see the money flowing through the buckets through into your final hands in retirement.

Bucket three is everything else. This is where everything high risk, high growth, investment grade sits, primarily people super, but often their house as well any other investment properties or shares. This is high risk money, you know, your share portfolio may have in value in the next month, I'm not saying it will, but it might. So the worst thing we could do is have that volatile asset, be the one you rely on to live day to day. So back three years, let's leave it alone, let it grow, it'll start kicking out dividends and income. Ideally, we never touched this. This is the capital base from which our income stems.

So we've talked a little bit about the target returns, the higher the return, the higher the risk. So you can see over here, we want you sitting in cash over here bonds over here, she has a property. So as an example, this is three buckets version 1.0, just as a flag. So this is probably not us on the call. This is for people in retirement. This is the traditional model of the three buckets that I've shamelessly pillaged for the idea of three buckets for money management. So you have $75,000 in annual living expenses moving into retirement bucket one, you want to hold $150,000 in cash, or accessible. So most of that was sitting in an everyday account, with the remainder sitting in a high interest account that everyday account then pays you a salary every month, and runs down over time. An alternative in there that we'll talk about a bit later, you could use an offset account,

Bucket two higher return, but still risk, low risk $300,000. So we've got four years’ worth of income sitting in there with $75,000, or a year's worth of income sitting in a three month term deposit another year's worth in a six month term deposit and $150,000 sitting in bonds of a longer duration, the idea there is you should be able to deduce a higher return out of that share of the portfolio. But in a pinch, if you should need to access it, if things have gone horribly wrong, you can access it, we know back of three $550,000 Sitting all in Super 100% shares and property moves around a lot. If they looked at it every day, it would give them heart palpitations. But it's generated the kind of returns in the longer term that will keep bucket one and two viable. So the money flows, then bucket one comes out, it pays their everyday living expenses. Now remember, this is coming from an American planner, they don't have Superannuation, the way that we do. So the structure, you can replicate it within super. Bucket one drops by $75,000. At the end of year one we are ignoring any interest returns here. So what they do then is they take $75,000 out and bucket two and top of bucket one, the idea of this as most sorts of recessions or really bad market periods tend to resolve themselves within two to five years. So the worst thing you can do is make sells to your growth assets in that period of time. Bucket two has dropped in value. But bucket one is back up to its full two-year ratio allocation.

Now one thing I should point out here is that this is very much a framework. It's not a straitjacket. So we use this framework in a lot of our retirement planning, but it's very flexible. It really does fit around what people need. It's the idea that's important that having the three buckets being as I've said earlier, intentional with how you're allocating money. And intentionality is a really strong priority for us as advisors. And something I encourage everybody watching this to think about is how intentional Are we being with our money? Are we just going with the flow? Are we I mean, that's a good lead into the metaphor, but are we making decisions that suit us and our family because of our own goals and our own reasons. So you see, this is a much bigger concept, I think of financial advice. So rolling on from that idea of the three buckets, we developed an idea around three buckets, version 2.0, sort of how to hold the money, it's how to allocate the money. And personally for me, I think this makes a bit more sense as a bucket analogy, because what we're really talking about is we have a tap sitting above the three buckets, and then the water slash money is flowing in out of that tap, that's your income each month, each fortnight each year that's flowing out of that tap, and it's ultimately flowing out regardless of what your money plans are after it. Right like your employer or your job doesn't care what you're doing with the money. Your lender probably does, but you bet your employee doesn't. So it's incumbent on us to work out with his flow of money coming out of this tap. How do we allocate it? Now there's a multitude of different ways. I think the three buckets’ methods is a really good fit and a really good way to go about it. Because again, as it says on here, we're allocating with intention. We're diverting that cash the flow of water, where we want it to go for the purposes that suit us suit our objectives and suit our family rather than just sort of splashing around with chaos. Just very much this picture. So if you imagine that tackle turned on at full bore There's a volume of water pouring out of that. For a lot of people, I think this picture of this sink represents their financial arrangements, the water hits their big one, and it just splashes everywhere and splashes on the wall. They don't even know where it's gone. It's hitting all the different sources being all the different parts of their life. And there's no audit to it. There's no intentionality behind it, it's chaos. It's very wet, very splashy, very messy chaos.

So, with the three buckets version 2.0, there is a process that we follow. So the first one is what are your annual living expenses, and we're going to talk about that in a moment. From there, we want you to save up six months’ worth and for people that have watched the five basics of money management video, this echoes, I think, the Dave Ramsey approach the baby steps, save $1,000 save X save Y it's very much trying to set the goals as an achievable level so that you get that satisfaction of getting there, which makes number three a little bit challenging, because we're talking about saving another two and a half years’ worth of living expenses. Once you've done that, then we pivot into investing bucket number three.

So let's start with bucket one. And hopefully your bucket one isn't quite as rusty and filled with holes is this one of the few stock photos I could find online and had a bucket in it. So this is a good way to think of it is your rainy day bucket, I've just realized that actually reverses the metaphor. So I'll have to come up with a different one. But this is for the day when things go wrong. You know, the washing machine blows up and the same day that the fridge dies on the same day that you need to change the car, the brakes on the car on the same day that somebody gets sick. It is impossible to properly articulate to people the immense satisfaction and pride that comes with knowing that if that were to occur, you've got a pot of money behind you that you can rely on, you're not dipping into credit cards, you're not having to call your parents for a loan, you're not having to, you know, a payday lender or anything like that. It’s cool, I've got this, I've got my money sitting there. It's an incredible feeling. It's an incredible feeling of security and maturity. And it's something I really encourage people to pursue. So for me, this is priority number one, we need to accumulate six months’ worth of your living expenses in this account. Now where it's held, it doesn't really matter. It could be an add call account, a high interest account. Personally, I can add offset accounts a great fit for this, because you're not paying tax on the savings you're getting. And you're making progress on the mortgage at the same time. It's a fantastic structure.

So really what we want to do for this step filling bucket number one is to divert 100% of your savings capacity into this structure. Now, a fair question there is what your savings capacity is. So what we're talking about here is that is the percentage of your pay and income that you can save each month. Now we're going to cover this in a later webinar. Because we're talking about intentionality and allocating money, I find ratios really useful. I find if I were to sit here and say you should be allocating X dollars and Y dollars and Z dollars, that's not super useful, because all our incomes are different. All our expenses are different, our situations are different. Whereas using ratios makes it a lot easier for you to plan and it also makes it a lot easier for you to corral your expenses in your life as your pay changes. But when we're talking about savings capacity, we are talking about the percentage of your pay that you can save each month. So I've just put in some percentages here to show you kind of where they sit on the chart of what I think is kind of a good idea when it comes to somebody managing their own finances. So I believe saving 0% of your money currently, it's frankly unsustainable. Life does not remain as smooth as it might be, like the moment things will come up to have no savings behind you is a very nerve wracking way to live. 5% much better. Yeah, we're putting some money aside. 10% I feel like is the very minimum baseline. If people have consistently saved 10% of their salary, I think that's a good place to start. Remember that about 11% of your salary is also going into Superannuation. So Dave Ramsey's baby steps allocated a certain amount of retirement funding again, we've got that fantastic advantage in Australia of having Superannuation contributions paid for us. People rail about Super, but genuinely it is one of the most financial, one of the greatest financial and economic steps these countries have ever taken. So big wrap for it 15% We're starting to talk some progress, we're starting to put some money aside you're starting to it's really starting to get ahead with where you want to go. 20% Fantastic. 20% is a big green tick in my book, if you're saving 20% of your pay, you're in a really solid position. If you're saving 25% or more, by all means I give you permission to be smug about it. Permission, the smug granted, because that's a fantastic place to be. Now that might be because you're earning a huge amount of money or for some of the clients that I've worked with in the past, you might be spending far less than average. And this raises an interesting point too. So we'll start with a gross salary of $120,000 Let's say that's their individual salary. Their net income after tax assuming no tax, allowances, deductions, offsets, anything like that $90,500. Of that, if we assume they're looking to save 20%, they should be putting aside $18,106 per year. Then the living expenses, the remaining 80% is $72,000 in their pocket that they can allocate towards living expenses be those needs, wants, however they want to do it. Now, you will notice there that I've reversed the norm. And this is a really key consideration for people looking to take charge of their money. For most people, the vast majority of people, the cycle is I get paid, I spend my money and then I save whatever's left. Now, if you refer back again, to the money management basics, I really encourage you, if you can move towards the point where the pay comes in, you siphon off your savings, and then you live on what's left, that puts you in the driver's seat, you're driving where you're going with your money, then because you're dedicating that portion of your current income towards your future life, it's again, really empowering but quite difficult because it is unusual it most people don't do it like this. Pay yourself first.

Okay, so back to buckets. Bucket one is your rainy-day bucket where allocating 100% of your savings capacity to fill that up. Now let's use this living in the same example of $120,000 people we were just talking about. Their living expenses were $72,000. So that means it's six months of their living expenses, our target savings amount within bucket one is $36,000 and change. Now they've got a savings capacity of $1,500 per month. That's the $18,100 that we were talking about earlier on. That means that if they can save that amount every month, they will hit their target within two years. In two years, if you're a lot of finance, now it's about instant gratification, the system is geared towards you spending your money on things you don't necessarily need as quickly as possible. So this is going very much against the flow of that particular river. Taking 24 months to save money, most of the people on here will have saved a deposit for their home. But saving for two years to hit a target amount that is fairly arbitrary is very against the grain. But again, incredibly empowering. Because at the end of that two-year period, you will have $36,000 sitting in your bank account to cover you for a rainy day.

Let's talk a little bit about what that rainy day might be. Let's say you lost your job. And you couldn't find another one for six to seven months. Let's say you're made retrenched let's say you were hurt at work, and you don't have income protection. Let's say a parent of yours was ill or a child heaven forbid was ill and you needed to take six months off, but your employer was being a bit of a stick about it, you can take six months off, and now you've got that financial security.

There's a phrase out there that I think a lot of particularly in the wealth space that people sort of pursue and pardon the language, but they pursue FU money. If you have fu money, you can tell everyone where to go. This, to me, is a big part of that. This gives you that security for at least six months to know that you are in control of your destiny. And for a lot of people again, that's not very common.

Do 24 months. So let's visualize that. So they got a net salary of $90,000. And again, even here. My inclination when I first did this was that the living expenses on the left were wrong, savings come first pay yourself first. So savings comes through, it's parked in bucket one. Now in this case, parking in an offset account, sitting against their mortgage and is going to save them a bit of interest. Now not a huge amount of interest. But they're saving six and a half percent against their loan and not paying tax on it compared to getting four and a half percent outside of the loan and paying tax on it. So that's just arithmetic, sort of a no brainer.  So living expenses have been covered as well, $72,000. So that's bucket one. And that's the two years. So 24 months, they allocate that plan, they stick to the plan, and they pursue the plan. Now we will talk a little bit later about how things change and grow. But if they just stuck to that plan, within two years, they have filled their first bucket, which means we can move to bucket two.

Bucket two was two and a half years of living expenses. And I see this as a buffer account. So we talked a little bit earlier about if you money. Six months is that first stage, I think having two and a half years of living expenses and other investments. You're now in a position of incredible financial security. For most people that experienced trauma, a medical trauma or an injury or an illness. It sort of tends to be a two-to-three-year period that makes the biggest difference. They can take time off work. They can focus on their recovery rather than having a rush and I had a client once we organized trauma insurance for them. So it's a different matter than this. But they had a claim on it, unfortunately. They had prostate cancer. So they were telling me though, that they were really glad that they took out the insurance because it's not cheap. It's not easy. It's an expense that sits there but they because when I was sitting in the room with the chemo, getting the chemo pumped into me, I was sitting there reading a book, just sitting there and being in that awful moment, but being able to just focus on my treatment, because the next one was on their laptop, knocking at work emails while getting chemo pumped into them. Now that I can't speak to what that does for treatment, sort of prognosis, or anything like that, but I just think for me, personally, I would rather have that control over my life where I can focus on my treatment and give myself the greatest chance of getting better.

Now, we're walking off a bit of a diversion here, but this is what I'm saying, by building this buffer account, you're taking back control of your money, a lot of people have floating along a river, like a bit of bark to bouncing around between the rapids hitting rocks every now and then. And eventually, they go over the waterfall. What I want for the people we work with, and what we wanted The Advice Gallery for all of the people that see this stuff, is to have the certainty and the strength to row your own boat, swim your own current. And that's where this sits in. So it can be used for emergencies, like we're talking about, or can just be left alone, it can just be part of the offset account.

Once bucket one is full, dedicate swing around that savings amount that 18,000 or change into this bucket. So here's where things get a little bit hairy, and people start to say, Jordan, you're out of your mind. Two and a half years of living expenses for these people is $180,000 of savings. So if you're saving $1,500 per month, it's going to take you 120 months to hit the target. Now a reasonable response to this is 10 years, you're mad, we're not going to save $1,500 for a month for 10 years. The reason I wanted to include this is because I'm making it really obvious this is not a get rich, quick plan. I hate to get rich quick plans because they don't work. They work for the people selling the plan. But for the people that actually trying to persecute it, they don't really work out. So this is why shiny distractions like crypto and gold and things like that there cool but they're never going to really be a way for you to build long term sustainable wealth, while we're talking about here is getting rich slowly. So working through, you know, the intentions, the objectives, the structure, so that your money management is sitting eventually on autopilot, and you're just accumulating wealth, because you're saving money and you're taking your time. Because I should flag that while this 10-year period feels incredibly long. And it is and for most people, it will save a little bit of money, then we'll start investing. Having this initial this third buffer account in between tends to raise a few eyebrows. But remember that other things will be happening at the same time, the equity in your home should be growing, not just because the property market will be increasing, but also your loan payments should be knocking it down not to forget the growing offset balance you've got. Your Superannuation will be growing as long as you're working, your Superannuation will be growing 11% of your salary is going in there plus market returns plus compounding fantastic vehicle to accumulate that longer term wealth. And when you're talking to a planner or an advisor down the track, it's worth noting that different vehicles create different options, and they offer different timelines and they offer different characteristics, blending them together is a really good way to go. And at the same time your salary should be growing. Now here's a little bit of a trap that people often fall into my salary has gone from 120 to 150. Fantastic, but my expenses have gone from 72 to 110. And so in that case, your lifestyle inflation has eroded your ability to save money. And your ability to save money will determine the level of wealth you accumulate in the future. And that determines your level of comfort and security in your finances. So if you want to be confident in your financial picture, we need to maximize our savings. So your living expenses will be growing. That's just an inevitable reality of economics. But if we can keep them growing slower than your salary, then you will start moving through those savings bands we talked about earlier and going from 5% to 7% to 10% to 15%. This is probably the part of personal financial management that I think requires the most active attention because it's very, very, very easy. And this is somebody who buys more takeaway than they should. It's very, very easy to fall into that trap of convenience, simplicity, access and spend more than you should be. So this is something I think really dedicated to if you are going to focus attention anywhere after you've constructed the plan. This is where I would be putting it.

Now, this is a hard one to deliver because you may never achieve filling bucket number two. That for any other sort of Taipei's out there that are really keen on achievement. This is a very hard pill to swallow because you've set yourself this target, you're plowing money into that idea. You may never achieve it, but this is okay. Because similar to three buckets version 1.0 This is not a straitjacket. This is a framework to help you make easier are in better decisions about your money. So, I do this a lot, I try to use habits too, to make the decisions that I need to make easier, because I need to actively think about things, I won't do it, my cognitive bandwidth is chewed up. So if I can do the work upfront to invest the time and energy to make the right decisions and build the right structures, then it's on autopilot, that at least I know I'm being intentional.

Now then, if three years down the track, something comes up and I need to pull $50,000 out of that account, or I need $100,000 or whatever. That's fine, because at least I know that I've been dedicating the time and energy into that avenue, because think about it the other way around. So you didn't do this. So you didn't pursue this goal. That may be unachievable. And you didn't get six years down the track. And then something happened, or you had an opportunity to travel overseas, but you couldn't afford it, it became a decision, a financial decision, rather than a lifestyle decision. This, I think, is to me real wealth, when the decision the bulk of the decisions you're making in your life are based on what you want to do rather than what you can afford to do. And underlying the advice gallery mission is this idea of equipping people to get to that point as quickly as they can. And like I say, you may never actually achieve that. But it's the effort, the trying and the structure that will make the biggest difference to your financial life. So that's a little graphical demonstration of how it works. Bucket one is now full. So we're diverting the savings over to bucket number two. Now bucket number two, because of the volume of money that's going to be sitting in there, I would use an offset account for sure, you can use a high interest account, but inflation has been running four or 5% in the last couple of years, and maybe you're getting three to 4% rate of return. So you're going backwards. If you can keep it in an offset account, in most cases, your offset sort of loan rate is probably going to be higher than inflation. So at least you won't be going backwards, and again, not paying tax on it.

Now, bucket number three, this is I just realized something actually bucket number three is probably the bucket that most people think about when they think of financial planners. I think the public image of financial planners is they help wealthy people manage their money. And that is a big part of the job. But I think we've covered enough today for you to realize that buckets one and two, while we may not necessarily be involved in every aspect of that, it is a key part of the process that gets you to bucket three, because this is where everything else goes.

So let's say you're in a position where you have cleared bucket number four, you filled bucket number one, and you've managed to fill bucket number two, and maybe you did it within 10 years, maybe you broaden that gap between expenditure and income. So you were able to increase your savings capacity, maybe you got some nice bonus that you bonuses that you plunked back in there, all the time, everything gets parked in bucket number two, you've now filled it. So now you're filling up bucket number three.

So again, in Australia, we've got that unique example of having Superannuation. So really Superannuation sits in bucket number three, but what we're talking about is the extra level, the personal investments, the investment property, the share portfolio, the other holdings that you can develop over time. Now, for most people, like I said, it's let's have a decent amount of savings and then hop straight into bucket three, and I get the appeal of that. And honestly, you're probably not going to go wrong if you do that. But what I love about that second bucket is it gives you that extra layer of security, it gives you that extra layer of habit to build and to delays that prospect of moving into this higher risk area. Because this is where the risky assets are, you may lose money on bucket number three, you may end up having $300,000 sitting in a share portfolio that halves overnight like it did during the GFC. Now if that was your only pot of money besides your day-to-day living expenses, six months’ worth, you are going to be more inclined to panic and to take action and to sell. And that is the worst thing you can do in that scenario. What bucket number two does is it gives you the luxury of space and time where you can say okay, cool, I gather that's halved in value. But my bucket number two is in really good shape, I can ride this out. And only in the most disastrous of circumstances will three years of combined savings are not enough to ride out an economic downturn. So this is why this also frees you up then to invest in these more volatile and higher growth investments you can invest in that more spiky share portfolio if you wanted to, you can look at buying different types of investment property because you know that by buying this you will be sitting on it for a long time and riding out those temporary bumps along the way. 

So bucket number three we don't know what the amount in there is. Part of working with a financial planner is setting your retirement goal. This is kind of what we call your number. This isn't another amount of money and capital you need to have behind you to be able to have fun nationally free. Now, traditionally, that meant that was the amount of money you had in savings, so you can retire comfortably. It means different things now. But we don't know what that is, that will be an individual number for every person. So this is the only bucket in the scenario that isn't based upon your living expenses, this is purely wealth accumulation, you might end up with a million dollars in there or $10 million, we do not know, the idea, again, you're being intentional and building that balance with the safety of having your rainy day and your buffer buckets sitting there. So it's full, it's not doing a great deal.

So we're coming towards the end, because we've covered a lot of ground here. So I am going to set a little bit of homework for you or for anybody watching this or listening to this afterwards. I suggest you take some action here because it's all well and good to listen to this and talk about this. But I think this is a framework that you could implement within the next couple of days within your life, it's going to take some changes, because you will need to adjust some things if you're not already doing things in a similar way. But step number one, work out what your actual living expenses are. Now, for some of you that are across that number, that might sound really weird. But I can tell you right now that that is a very, very unusual piece of data people has.

For most people, it’s my pay, I'll spend what's left on pocket in the savings, spin it around, take control, work out your living expenses, there's some really fantastic budgeting stuff online. Honestly, the ASIC Money Smart budget is really good. A lot of planners use that with clients. So check that out. And then from there, work out your savings capacity. And again, we're trying to flip that mindset. We're trying to flip that mindset from living expenses. First, I'll save whatever's left, flipping around us, okay. I think looking at these numbers, I can save 10% of my salary each month. That's the case, wonderful. You've then set your living expenses, how different are they to the living expenses you've just measured? And where are you going to make up the gap. Because we're talking about financial realities here, you cannot make things up. So once you know what your living expenses are, once you've worked out the savings capacity, you will then know what your ideal living expenses are, you need to then get them into alignment. So that's quite a, it's a decent exercise like this is you sit down after dinner one night, you sit down together, and you work it out over a few hours. If you are in a couple, this should be done together. It doesn't work in business, whatever you.

Then write down your bucket targets bucket number one, six months times my living expenses. Well, once I've done that, how many months isn't going to get me take me to save that amount. Starting with your current savings balance. subtract that from your six-month living expenses target, and divide that by your savings capacity, your monthly sales capacity. The way there is a worksheet that will help with this, I just realized, as I'm explaining, it all makes sense, but a lot more detailed verbally than it would be in presentation. Then get to work on bucket two, what's my bucket two target, what's that number that I'll be working towards, and then set up your accounts every everybody on the call, I think should have an offset account. If you have a loan, or a redraw facility or something similar. Speak to your friendly Loan Gallery broker about reviewing that if that's not the case, often there'll be a really good reason. So don't come back and Galloway.

Have your offset account set up but also have a high interest savings account set up it's good to have both most banks now will have an everyday transaction account with a high interest savings account. There is one bank I am aware of who can see there's a high interest savings account to be 1.5%. But there's not a high interest savings account 4.5%. At the moment that we're talking on the 29th of February 2024. 4.5% is a realistic expectation for a high interest account, anything below that they're kind of taking the Mickey or just email me. So we have a worksheet that we'll put together. So it's an Excel sheet, it's pretty, pretty simple. But I've highlighted the areas, you plug in your numbers, and then it'll work it all out for you. So you plunk in here your names your net salaries. So that's on an annual basis. So you take your monthly salary multiplied by 12, or however it works, then choose your savings rate you'd like to use we've dedicated, I don't think there was an option, but 5%, 10% 15%, 20% 25% or work out dollar amount you'd look to allocate towards your savings each month and year. That'll then work out your savings capacity, it'll work out your monthly target. It'll work out your living expenses, aspiration, and then it'll work out your buckets for you as well. But also, then give you potentially the rather depressing figure of how long it's going to take you to accumulate that. So you can see in this case, two people on $50,000 who are spending $90,000. They will take a very long time to save the money they need to fill up buckets. And then we've created a distinction in there again, referring back to that 20% threshold. If you're doing it at 20% Here's where you get.

Worth making another observation here and This, again is probably going to sound quite simple. But what this exercise will also show you is whether or not you're simply living beyond your means. And this can be quite a confronting revelation. Because of this these, this couple here looking at that I can safely say they cannot afford their lifestyle, they are living beyond their means. Yes, they're saving $10,000 a month, fantastic. But they are spending 90% of their net salary on living expenses. Realistically, if we're aiming for a 20% savings rate, at the most, they should be spending $80,000 all in on every cost in their life. So when you do this exercise, you fill in your net salary figure and your savings rate. Hopefully, that living expense target is not quite up towards that 90% mark, anything below 80% there, which is why I've italicized the saving 20% figure is really something to work towards. If you're not there now call but work on it. Because, like I've said, that's your path to security, that's your path to confidence and certainty. So that's what we really want for everybody we're working with, or that we're talking to through the advice gallery.

So email me if you'd like that bucket worksheet. The email address is jordanvaka@theadvicegallery.com.au. Or you can send it to Hello@theadvicegallery.com.au. Like I say we've covered a lot of ground. So reach out if you do have any questions or if you wanted to ask anything of me or the team.

And again, I will highlight that The Advice Gallery for limited time is offering that promotion of waiving all of our advice fees for any clients of the loan gallery, or for any connections with the Metricon group. So if you do want to take advantage of that reach out, we'll organize a time to get started on that. Genuinely we're here to help. So let's get started. Get in touch.