Every Dollar Should Have A Purpose - October 16, 2026

1 day ago

4 min read

The Three Bucket Approach To Money

When I was in my twenties I never had more than a few thousand dollars in the bank. My chequing account peaked on payday and dwindled from there until the next payday. I was working towards my CPA designation, making less than $30K per annum (yes, this was a long time ago!), but I did live at home where my housing and food costs were zero (thanks Mom!). I did what a lot of young people would do back then, and do now, which is spend money for enjoyment today, and not even think about the future…I was focused on instant gratification.

The irony in this is that now I relentlessly preach this to my children, who are in their twenties, and to any of their Gen Z friends who will entertain this discussion, that your money should always go into one of three buckets, and money should always go into all three buckets. Those buckets being:

Bucket 1: Live Today - This is the money you need to live your life today.

Rent or mortgage payments
Groceries and utilities
Transportation and insurance
Restaurants, entertainment and fun money

The Rule of this bucket: Pay your bills, enjoy your life and make sure your spending stays within your means.

Bucket 2: Plan for Tomorrow - This is money you set aside for things you want to buy in the coming years.

An emergency fund for unforeseen expenses
A down payment on a home
A new car
Golf clubs or other expensive hobbies
Travel, renovations or other major purchases

The Rule of this bucket: Save for the things you want, before buying them, rather than financing every purchase with credit card debt. And, have money set aside for a rainy day, that is not your retirement fund.

Bucket 3: Invest In Your Future - This is the money you are setting aside for the person you will become decades from now.

Workplace pension or retirement plan
RRSP (tax-deferred retirement savings) , TFSA (tax-free savings accounts) in Canada; 401(k) in the US
Long-term investments

The Rule of this bucket: Start early, contribute consistently, and resist the temptation to raid this bucket for short-term wants. This money will grow through compounding.

The third bucket is the most powerful one

The most important lesson for a young person isn't how much to save, but rather to start early and do it consistently. I didn’t learn this lesson until I was in my forties.

For example, investing $500 a month, starting at age 25, for 40 years at an assumed 6% annual return, compounded monthly, would grow to approximately $1 million. The person would have contributed $240K of their own money; the remaining $760K comes from investment growth.

But, if you invest $500 a month, starting at age 40, for 25 years at the same assumed rate of 6%, compounded monthly, you’ll end up with only $231K, of which you contributed $150K. This example alone illustrates the power of compounding. Starting at 25 rather than 40 makes an enormous difference.

My Lessons Learned

When I was 28 years of age, I had $5000 in savings and I needed every penny of that to buy an engagement ring for my future wife. I had been working for four years and should have had more in savings, but as I mentioned above I was not following the Three Bucket approach. I am not a good example to my children or their friends, and this is a classic case of “do as I say, not as I did”. When I was in my twenties, I had a choice to save money or spend it on fun activities, as I had no immediate living expenses. Those were not wise decisions on my part.

When I finally understood the power of compounding, when I reached my forties, I wished I had learned this lesson twenty years prior. I’m hoping someone in their twenties read this article and has an epiphany regarding compounding that eluded me for so long.

I was fortunate to have built up a decent nest egg of savings, through a successful career as an entrepreneur and business leader. My current financial situation did not come about because of the discipline of a Three Bucket Approach, but it should have and that’s my mistake. But later in life, as I grew my nest egg, I came to realize the power of compounding. Your money grows and works for you, instead of having to work for money

The Final Word

Enjoy your money today; you’ve worked hard and you’ve earned it. Save for the things you want tomorrow. And, never forget the person you'll be 40 years from now…that person is counting on you.

Thanks for reading!

Note: This article reflects the author's personal experience and perspective. It is not professional financial advice. Consider speaking with a qualified financial advisor about your specific circumstances

Are you a Gen Z? What is your approach to savings? Share your thoughts in the Comments section below.

How do you feel about the Three Bucket Approach? Should there be more, or fewer, savings buckets?