Email question: Where should funds in Bucket #2 be placed?

Hi Pete,

I read your 3 buckets of savings blog. I have never been sure where the money for the midterm bucket should be placed. Where do you put the midterm bucket so you can get to it when say you need that downpayment or eventual vacation?



Hi Laura,

Before I answer this question, let’s review the buckets.

Bucket #1 is your emergency fund. This bucket holds up to three months worth of expenses. If you need to use the emergency fund for an emergency, then you will refill the bucket back up to the three months expenses line. This bucket should not hold more than three months worth of expenses.

Bucket #2 is non-emergency, non-qualified money. This is your wealth bucket. After your emergency fund is funded and you are contributing the maximum to your retirement accounts then you are able to start adding money to this bucket. It can be used to build wealth or to save for a specific goal like a down-payment or vacation.

Bucket #3 is your retirement savings. This is longterm savings for retirement that is not accessible until you are 59 1/2. This is your 401(k), Roth IRA, etc.

I answered your question about Bucket #2 on The Pete the Planner Radio Show this weekend on 93 WIBC. Listen below to hear where those funds should be located:

Bucket #2 is a great bucket. If you have anything in Bucket #2 it’s exciting! There is a lot of potential in this bucket.

One option for Bucket #2 is using a brokerage account, which is what I use for mine. You can use an online brokerage account or brokerage account at a local financial advisor. These are nice because you can hold different types and kinds of investments in one brokerage account. 

The funds in this bucket are all about time horizon. Within this bucket there are several different goals which have different time horizons, this is important to remember when deciding on an investment type. For example, you may want to buy a house in two years so you are using this bucket to save for a down payment, but you are also using this bucket to save for a vacation in one year. Or say you want to retire early at 55. Since you can’t access the retirement funds in Bucket #3 until 59 1/2 you can use this bucket to save for those interim years, which puts your time horizon at decades. The important thing to remember is this bucket houses all types of funds and they shouldn’t all be treated the same way.

It’s also important to remember that this bucket is “virtual”. We are using Bucket #2 as a term to categorize, but this doesn’t mean all the money or assets need to be used or invested in the same way or even kept in the same place. I have a rental property and the equity in my rental house is “kept” in Bucket #2. This isn’t physical money like a vacation fund will be, but they are both kept in the same bucket.

This is the financial wellness bucket, it means you have budgeted and planned and you are headed in the right direction. The best thing to do is assess what your goals are for this bucket and then plan for each goal accordingly.

2 thoughts on “Email question: Where should funds in Bucket #2 be placed?

  1. Hi Pete! In which “bucket” would you put 529 savings accounts for kids college?

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