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The Bucketing Method: 7 Important Savings Categories
Jenius Bank Team8/9/2023 • Updated 7/10/2025
Splitting your savings into different categories may help you manage your money more effectively. Bucketing savings into categories is a fairly simple financial wellness hack that could help you more efficiently manage progress with your financial goals.We’ll discuss seven common savings types below: emergency, rainy day, sinking, vacation, splurge, medical, and long-term.Once you gain a better understanding of the types of savings you could have, then you may pick and choose which savings options are best for you.
Key Takeaways
- Creating different types of savings funds may help you manage your finances better.
- By allocating money to specific categories, you may be able to resist the temptation to spend impulsively and stay on track toward your goals.
- Each savings bucket serves a unique purpose and could help you cover a diverse set of short and long-term areas of financial wellness.
Why Should I Categorize my Savings?
If you don’t have a savings account, stop everything and open one… checking accounts are for transactions and are not designed for saving. Savings accounts come in different shapes and sizes, like traditional accounts, money markets, or CD’s, and are important financial wellness tools, thanks to compound interest, to help grow your money over time. To up your savings game, divide savings into categories. Here are a few key advantages to splitting your savings by type:- Developing self-discipline to define specific savings goals and prepare for the unexpected
- Simplifying how you track saving progress by goal
- Creating a tangible method to ensure you allocate funds across multiple goals
- Reducing the temptation to spontaneously spend money that's intended for other purposes
7 Common Saving Categories and Funds
Let’s get into some of the different saving buckets people tend to use.1 - Emergency Fund
An emergency fund acts as a financial safety net for unexpected circumstances. It helps cover essential expenses during times of crisis, such as job loss, medical emergencies, or urgent home repairs. Experts often suggest having 3-6 months’ worth of essential expenses saved in this fund.1 When calculating how much to save in your emergency fund, consider only vital expenses and exclude things you could cut out during a financial crisis. Vital expenses typically include items such as:2- Housing
- Groceries
- Utilities
- Insurance
- Transportation
- Minimum debt payments
2 - Rainy Day Fund
While an emergency fund is for major crises, a rainy day fund is designed to handle smaller unexpected expenses. It serves as a buffer for those minor financial surprises, such as car repairs or appliance replacements. Aim to save anywhere from a few hundred to a couple thousand dollars in your rainy-day fund, depending on your lifestyle and comfort level. This fund may help provide peace of mind and help prevent you from dipping into your emergency fund for minor setbacks.3 - Sinking Fund
A sinking fund is a saving strategy for planned expenses or specific goals. You build money in a savings account toward a one-time target, such as a down payment on a car, or expenses that reoccur like property taxes or insurance. The term "sinking fund" originated in the business world and referred to a company setting revenue aside for a period of time to fund a future expense or repay a debt.3To determine how much money should go in your sinking fund, calculate the total amount you need for your specific goal. Your next step is to divide the total by the number of months available to save. Finally, make a line item in your budget, or whatever tool you use to track your money, to ensure funds consistently go into your sinking fund.4 - Vacation Fund
A travel or vacation fund is a great way to save for your dream getaway. Whether you're planning a luxurious vacation or a budget-friendly adventure, having a dedicated fund could help you travel without worrying about the impact on your normal monthly expenses. You may choose to make regular deposits in your savings account to build a fund. Or, you may approach your savings like a sinking fund where you work toward a known cost of a planned (or aspirational) trip.5 - Splurge Fund
We all have the need to splurge from time to time.That's where a splurge fund comes into play. This fund allows you to treat yourself to little luxuries guilt-free. Allocating a small percentage of your income to a splurge fund may help provide the freedom to make spontaneous purchases or rewards without derailing your financial plans.6 - Medical Savings Account
Medical expenses are often a significant financial burden, even if you have health insurance coverage. Creating a medical savings account may help you proactively manage these costs. While some individuals have access to Health Savings Accounts (HSAs) or Flexible Spending Accounts (FSAs) through their employee benefits, others may not. Setting aside funds specifically for medical expenses could provide a financial cushion if you’re suddenly injured or ill… and that could be even more important as you get older. Recent statistics show that the average cost of a three-day hospital stay per day was $30,000.4 While health insurance may cover some of these costs, most plans require patients to pay at least part of the bill.5By establishing a medical savings account, you may be better prepared to handle unexpected healthcare costs.7 - Long-term Saving Funds
In addition to the short-term savings categories we’ve discussed, it's important to allocate funds toward long-term financial goals, such as retirement or college. Retirement accounts, such as Individual Retirement Accounts (IRAs) and 401(k)s, are specifically designed to help you save for retirement. These accounts offer certain tax advantages and are an important part of long-term financial planning.Similarly, college savings accounts, like 529 plans, allow you to save for your children’s education expenses. These accounts may provide tax benefits and help you prepare for the rising costs of higher education.When considering long-term savings options, it’s best to consult a financial advisor.How Do I Manage My Savings Categories?
Once you decide which types of savings to have, then you’ll want to manage how you save and monitor how much is saved. Everyone has a different money management style. The system you use to track each savings category will depend on what works for you.Remember, your longer-term investment accounts are already separated by design, namely your IRA, 401k or 529 as mentioned.For the other savings types, if have a tracking tool already, like a spreadsheet or app, you may want to break out your balances as line items by goal. That way you can oversee how much you deposit for each purpose each month. If you need something even more concrete, you can always set up different savings accounts for different savings buckets.Consider Multiple Savings Accounts for Your Categories
Setting up specific accounts for savings goals, like a wedding, a car, or even a home, could make a difference in your saving discipline. Having the monies separated may help you better visualize the growth; it’s a bit easier to observe the balance increase over time. It also may help you keep funds focused on their intended goal. For example, if your emergency fund is separated from your vacation fund, then you’re less tempted to dip into your safety net if you want to upgrade your flight.Having high-yield savings accounts could help to maximize your savings effort too! High-yield accounts typically have higher APYs than traditional savings accounts (and choosing one that is FDIC-insured is smart too). Think of how satisfying it would be to watch the accounts grow even faster! When saving is fun, it makes financial wellness feel that much better.Final Thoughts
By putting different savings categories into action, you may be able to achieve a more secure financial future. When choosing which type of savings fund to open, it’s important to assess and prioritize your financial goals. Remember, building wealth is a journey, and it's never too early or too late to start saving smarter. Whether you're preparing for emergencies, planning for specific expenses, or investing in your long-term security, each category plays a role in your overall financial well-being.Money ManagementSaving & Checking