Have I Been Doing It Wrong All This Time?

Dear Scott, 
 
Years ago I set up the Barefoot Bucket system and found it hugely successful, despite the ups and downs of my income. I religiously put money into my ‘Splurge’ and ‘Smile’ buckets, but I wanted to check with you that I’m using the ‘Fire Extinguisher’ bucket for the right reason – I actually use it to put 20% of my income towards regular bills (insurance, utilities, rates, body corp fees, etc). I suspect that isn’t right  – can you confirm if I’ve been doing it all wrong all this time?
 
Lauren
 
Hi Lauren
 
Yes, I can confirm you’ve been doing it wrong all this time.
 
And your penalty has been … you’ve been ‘hugely successful’ despite a variable income?!
 
That doesn’t seem so bad to me.
 
The idea behind putting 20% of your income into the ‘Fire Extinguisher’ bucket is so you can use it to fight financial fires that keep you up at night.
 
Which (for me) means:

First, direct it to paying off any personal debts (other than HECS-HELP).
 
Then, direct it to saving up a house deposit.
 
Now once you’ve bought your home, you then direct it to building up three months’ living expenses in your Mojo savings (or offset) account.
 
After that, direct it to getting the banker off your back – paying off your home early.
 
Finally, use the Fire Extinguisher to nail your retirement, which you can do with both barrels because, if you’ve followed the steps, you won’t have personal debts or a mortgage repayment!

Scott.

My wildest testimonial ever

The prisoner stared deep into my eye sockets, leant back in his chair, and slowly raised his hand.
 
“Can I share something?” he asked.
 
“Shhhh … ure” I said nervously, looking at the other inmates sitting around the prison table.
 
“Before I got locked up in here, I read your book, and I set up all my Barefoot Buckets. But I also added another bucket that I named … ‘Drugs’. And it worked like magic. I never missed my rent or my rego, and I always had plenty of money for my drugs”, he said triumphantly.
 
Weirdest testimonial ever.
 
However, as I looked around the room, all the hardened crims were nodding their heads approvingly.
 
Then I hit them with it.
 
“The Barefoot Benchmark is to try and live off 60% of your income”, I announced.
 
“And then you set up savings buckets for treating yourself (Splurge, 10%), long-term savings goals (Smile, 10%) and putting out financial fires (Fire Extinguisher, 20%).”
 
Folded arms.
 
In a cost of living crisis, who the hell can live off 60% of their income?
 
Answer? Not many.
 
In fact, after reading my book, people write to me all the time – OFTEN IN ALL CAPS! – telling me how deluded I am. You can sense the murderous rage exploding out of each exclamation mark!
 
Yet today I was sitting across from men who had literally killed people.
 
So, reading the room, I told the inmates that the percentage splits don’t really matter, suggesting they use it more as an exercise to find out just how much it costs you to keep your high beams on.
 
I explained that things may be so tight that some people could be only putting $2 into their Smile bucket. What really matters is that you set up all the buckets and put the entire plan on autopilot. And that is the ultimate get-out-of-jail-free card.
 
Final tip: don’t do drugs … or at least try not to get caught.
 
Tread Your Own Path!

Your bucket system failed us

Scott,
 
The bucket system outlined in your book is now failing us. With interest rises and inflation, our cost of living has increased significantly, and now our mortgage takes up 55% of our daily expenses bucket. Given these changes, how would you amend your system to accommodate this?
 
Heidi
 
Hi Heidi,
 
Where in my book did I say take out a loan where the repayments are more than half your take home?
 
That’s right, I didn’t.
 
However, I did devote pages and pages to explaining why interest rates would eventually rise … and my answer was to borrow less than the bank offered and to set up different money buckets to prepare for it.
 
So what can you do now?
 
You need to get your home loan repayments down to a more sustainable level – around 30% of your take-home pay is a good rule of thumb – and you need to do it pronto. After all, what are you going to do if rates go higher from here?
 
And you’re not going to get there by cancelling your Netflix or swapping burrata for baked beans. You either need to earn more money – by getting a raise, or taking a second job, or both – or you need to think long and hard about whether you can afford the house.

Scott.

I Have Done a Bad, Bad Thing

Hey Scott,

I have read your book four times and am hooked. My partner and I have set up our Barefoot Date Nights, renamed our bank accounts, cut up our credit cards and rejigged our super. And I am confident we are on the right track, with some savings and absolutely no debt -- not even 10 bucks owing to a mate. But I have done a bad, bad thing. A while ago I skimmed off the top of our Fire Extinguisher and Smile accounts, just to get through the last few days before my partner’s monthly pay. But now I am doing this every month. I feel so guilty. HELP!

Alice

Hi Alice

Well done on getting things sorted!

There’s no reason to feel guilty. If you’re short each month, you may just need to allocate more money to Splurge (the percentages I gave in the book were a rough and ready guide). Yet I’d still do a gut check and see whether what you’re spending that money on is really moving the dial for you. After all, the aim isn’t to be in a strict budget straitjacket, but to consciously spend your money on things you love.

Regardless, it sounds like you need to do a monthly date night with your partner, so you can nut this out together. Liz and I still do ours. These days though we only talk about our buckets for a few minutes (while looking at our banking apps on Liz’s phone), discuss any big ticket purchases we have on the horizon, and eyeball each other that everything is okay financially, and then move on to more exciting things. It takes time to get to that place, but if you commit to doing it each month, you’ll get there.

Scott.