With the weather getting warmer as winter turns into spring, many families begin thinking about where to make plans for a summer vacation. I dare say a popular vacation destination for a lot of Mississippi families is to head south to the beaches of the Gulf Coast and enjoy the sun and fun. And I would especially say for families with young children, some of the best “photo opportunities” (formally described as “Kodak Moments”) come from watching our youngsters — with beach buckets in hand, playing in the sand.
You may wonder, however; what does going to the beach have to do with our finances? Perhaps, more pointedly, the question might be; why is it we never can seem to get ahead financially? Here’s an idea that may work towards improving your financial outlook in the days ahead. In fact, I submit the solution might be as easy as watching what our kids do as they play on the beach.
If you’ve ever watched children playing in the sand with their buckets, they fill up one bucket and then start on the next, and then the next and so on and so forth. The ultimate goal of this endeavor usually is to build a sandcastle complete with elaborate tunnels, archways and drawbridges. Finding a strategy to build and accumulate savings can be pretty similar. This strategy, as my illustration suggests, will require three buckets, and, like an architect, requires establishment of a solid foundation for the sandcastle to rest upon. Here’s an interesting way to follow along with my financial analogy:
> The first bucket is what we will call SAFE Money. This represents the foundation — money we are going to need to put away for a “rainy day”. It should add up to at least two or three months set aside from our regular income that can be available if we have an emergency or need cash. Although it’s nice to earn interest with this account, the real purpose to this bucket is not predicated on earning a rate of return. Rather, the primary function of Safe Money is to be there as a source of help if the unpredictable happens. And, if you’ve been working for any length of time, you know that the unpredictable can occur and usually at the most inopportune time.
>> Once the first bucket is filled, we can then start pouring sand into the second bucket – which I call Goal Money. Money that accumulates in this bucket is going towards the major financial commitments in our lives, whether saving towards college for children or putting away money for retirement. This is money that will normally have a longer time frame to it — anywhere from 5, 10 to 15 years or more. And, it is money that is directed — that meaning; it has a definite, financial purpose in life such as college for the children or when you retire. For most Mississippians, committing money to the Goal Bucket represents most, if not all, the extra savings we have available to put away.
>>> The last bucket, which potentially can be the biggest bucket, is what I call Hot Money. The reason I call it hot is because that’s what this type of investment represents. It is totally discretionary money that can be placed anywhere – in the stock market, commercial real estate, in direct investments or whatever . . . but only after the first and second buckets are positioned and remain filled.
It’s not too late here in the spring of 2012 towards getting your financial resolutions on track. For most, the main step required is in building a little grit and determination. Just like kids building sandcastles on the beach improving your financial outlook should be like pouring sand from one bucket to the next. But key here is in keeping your financial house established in the right and proper order. That order being — safe money, goal money and hot money.
And from all this, who knows? Getting your financial house in order may give you a healthy new outlook for heading to the beach this summer.