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.