Financial Freedom Awaits: Transform Your Future With 4 Buckets

Are you financially resilient? Becoming antifragile can help you on your financial journey. Here is how you can organize your financial life into four buckets.

Jul 02, 2024

You can become financially antifragile. Antifragility has vital characteristics that can help you become stronger while building a more resilient financial plan. You can transform your financial future using four buckets to become financially independent.

Three Critical Disorder Categories

Everyone experiences tension. You can let it crack you and hinder your financial success, or you can learn how to productively handle the stress in your personal and financial life. Managing stress can help you experience a more balanced and fulfilling life.

You can place things in your life into three primary disorder categories. They are:

Fragile - These will break once they are exposed to stress.
Resilient and robust - These can resist stress or recover from experiencing stress.
Antifragile - These become stronger when dealing with volatility or stress.

Dealing with disorder categories may not always be pleasant, but it can lead to positive outcomes and growth. Physical challenges like exercise can lead to weight loss and increased strength. Intellectual challenges can broaden your knowledge and change your perspective. Mistakes can be valuable learning experiences. Properly managing your emotions can allow you to live a more balanced and fulfilling life by practicing self-control.

Build Antifragile Financial Plans

Another way to strengthen your financial plans is by making them antifragile. Learning to manage stress in your personal and financial life will make you better able to deal with the ups and downs of the financial markets and your own life.

One of the critical strategies in financial planning is finding a purpose for your money. This means that each cent you earn, save, or invest is directed toward a purpose that will assist your future self's financial future.

Another crucial aspect of financial planning is practicing self-discipline. This helps prevent impulsive spending, whether on another subscription, a Friday night out, or a new car on a monthly payment plan.

You can then account for your personal finances in four core buckets.

Protect Bucket

An often overlooked concept in financial planning is creating a financial buffer. Your financial bucket helps you become financially antifragile by allowing you to build a financial buffer. A buffer plays a critical role in any financial plan. It is essential to have a rainy day fund. Having a portion of your finances set aside to protect you can help you if you:

Lose your job.
You quit your job for whatever reason and are looking for another job.
You unexpectedly get sick and are unable to work for several months.

A financial buffer not only helps you in times of crisis but also allows you to make better career decisions. It gives you the freedom to choose a better opportunity that could come your way instead of being forced to accept the first job offered due to living paycheck-to-paycheck. This flexibility can significantly impact your long-term financial stability and career growth.

Common Types Of Accounts In Your Protect Bucket

The financial accounts that can be organized in your protect bucket are your checking, savings, and cash accounts. These are the accounts that can allow you to sleep peacefully at night. These accounts act as your emergency reserves.

Your checking account can have enough money to cover your monthly expenses. You can have another account where you save a percentage of your money each month.

Consider keeping some money in a basic savings account with your main banking institution for larger purchases. Additionally, a high-interest savings account, where a portion of your monthly paycheck is automatically deposited or you can deposit a percentage of your monthly income once you receive your paycheck, can help your money grow.

Cash-managed accounts, the third way to protect yourself, are liquid accounts in cash that are easier to withdraw from when necessary. These accounts, such as brokerage, financial apps, or robo-advisor, are designed to help you earn an annual percentage yield (APY) on cash you want to remain liquid.

How Much To Have In An Emergency Fund?

Your emergency fund is much more than a financial cushion. It's your safety net, providing you with the freedom to navigate unexpected financial challenges or to continue saving for the future.

Having three to six months of cash in an emergency fund is a flexible and empowering financial strategy. It gives you the freedom to handle any unforeseen expense, from a car repair to a job loss, without disrupting your long-term financial plans.

For the self-employed, having twelve months is often considered a best practice. There are more unforeseen risks that the self-employed and small business owners have to deal with that could arise. Having an additional savings account to deal with those issues in a business account is also important.

Continue to save and consistently build up the number in your savings account. There is nothing wrong with being like a squirrel that stores the nuts it finds to be prepared. There is nothing wrong with saving money. Merely save money to accrue interest from the money sitting in a high-interest savings account.

Insurance In Your Protect Bucket

There is a variety of insurance that you can purchase to further protect yourself and your property. Common types of insurance to assist you in becoming antifragile are:

Health
Auto
Home
Renters
Liability
Business

Insurance can help protect you if a major health or another emergency happens. It's important to note that certain states have specific laws about insurance, including minimum car insurance requirements. Understanding and complying with these laws is crucial, as failure to do so can result in significant financial penalties and legal consequences.

Live Bucket

The live bucket is your tool for taking control of your daily, monthly, and yearly living expenses. It's where you generate the income you need to live, giving you a sense of empowerment over your financial situation.

Your live bucket will include the fixed monthly expenses that go into a monthly budget:

Housing (rent, mortgage, own, property taxes, maintenance, et cetera)
Food
Utilities
Transportation
Insurance (health, auto, rent, home, etc.)

One of the most effective ways to allow your savings and investments to grow is to choose to live below your means. This decision can relieve financial stress, saving you more money from your paycheck at the end of each month. If you have any debts or want to pay off your mortgage quicker, living below your means also allows you to dedicate more money at the end of each month to get out of debt. Once you are out of debt, you can begin to invest money.

The protect and live buckets provide you with a sense of financial security. You can feel secure knowing that you have an emergency fund to continue growing. You can be confident knowing that by living below your means and following a budget, you live while having the ability to save at the end of every month.

The following two buckets, grow and invest, will help you find ways to make your money work for you!

Grow Bucket

While it is critical to live, it is equally vital to grow. Your grow bucket is more than just an option. It's a necessity in your financial planning. It can help you become financially antifragile, which means your financial situation is not just resilient to shocks. It benefits from them, providing a safety net for your future.

Your grow bucket is for the financial accounts that you want to grow. Common ways to grow your money are:

Certificate of Deposit (CDs)
401(k)
Stock market

Depending on the bank, a certificate of deposit (CD) can offer an APY compared to a savings account. You will then have to choose a fixed time amount to agree not to touch your money with the bank. You will then gain interest on the money and can roll it over once the term date is reached, or you can withdraw it. You will be penalized if you withdraw the money early from a CD.

If you have an employer who offers you a matching 401(k), this is a way to earn extra money to help with your retirement. Read the employee's handbook to understand your employer's rule about the 401(k). An employer will often require the employee to deposit the lowest amount during their first year of employment. Then it will continue to increase each following year. The employer will then match the amount you deposit into the employer's 401(k), which can help you double the amount saved in your 401(k) for retirement.

For example, if an employee invests $500 during their first year, the employer will match the $500. You will then have $1,000 in your 401(k). In the second year, you could invest $1,000 and so on.

The stock market is another way to invest and become financially independent. The stock market is a financial marketplace consolidating bonds and stocks and their derivatives, which are bought and sold by institutional and retail investors. You have many options to choose from when deciding to begin in the stock market. Types of stocks you can purchase in the stock market include:

Blue chip
Cyclical
Defensive
Dividend
Fixed-income
Growth
Penny

Risk is required for growth. The more risk you are willing to take, the more antifragile you will become. You will discover your maximum risk tolerance level, which is the amount of risk you are comfortable taking with your investments. It's important to understand and assess your risk tolerance before making any investment decisions. However, there is no guarantee of success with any investment.

Invest Bucket

There are many ways that you can invest. The most common way to invest that many people think of when they hear the word "invest" is the stock market. Other ways that you can invest are:

Marketable skillset
Real estate
Self-education

These other ways to become antifragile. You can become valuable in the marketplace by developing a marketable skill set. You can then continue to hone and develop skills around your obsession. Some skills that are in-demand include STEM, the trades, digital marketing, sales, and e-commerce.

You could invest in real estate. Short-term rentals are an option with Airbnb and Vrbo. You can flip real estate. You can buy a property. You can then rent it out to a long-term renter.

Self-learning is not just an option but a vital investment in oneself. Education continues once you graduate from high school or college. In fact, that is when your true education truly begins. You can read and watch content online, take free online classes through a university, or purchase a digital course. This continuous self-education is how you go deeper in mastering your obsession and can work to further master and monetize a skillset. It's a journey of enlightenment and awareness of the importance of self-education in today's dynamic marketplace.

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Summary

There are many ways to organize your financial life to achieve financial independence. Organizing your finances into four primary buckets can help you visualize which bucket you are directing your money toward. Financial freedom awaits you if you master self-control and your financial life.

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What area of your finances are you concentrating on to achieve financial resilience?