Inside the 3-part 'bucket' plan that a financial planner advises for millennials who are earning 6 figures but not saving

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Keeping up with the Joneses can be the downfall to truly getting rich.

That's why some millennials making six figures feel so broke. They fall victim to lifestyle creep, Gideon Drucker, a certified financial planner at Drucker Wealth and author of the book "How to Avoid H.E.N.R.Y. Syndrome," told Business Insider. Lifestyle creep happens when someone increases their standard of living to match a rise in their discretionary income.

This cohort of millennials — known as Henrys, short for "high earner, not rich yet" — doesn't have a plan to make sure they're saving consistently and automatically. According to Drucker, Henrys only save whatever money they have left at the end of the month after prioritizing all their other needs.

The better financial strategy, he said, is to pay yourself first — allocate money toward savings before your other budgeting categories. Henrys need to take advantage of compound interest to grow their money, he added.

"Henry's don't have an understanding of their time horizons," Drucker said. So, he helps them set up a "bucket" plan that segments money in three ways, based on each Henry's purpose. "Segmenting money allows you to not freak out so much."

Here's what that bucket plan looks like.

1. The 'now' bucket is for current goals.

This bucket is for money sitting in the bank that's easily accessible — also known as liquid money, Drucker said. 

Because it's immediately accessible, cash is the most liquid your money can be. Assets, such as your home or retirement accounts, are the least liquid because they're invested — allowing them to gain value over time, reported Business Insider's Tanza Loudenback.

Mary Beth Storjohann, founder of Workable Wealth, told Loudenback it's best to keep your emergency fund in a cash account so you can access it quickly in the event of an emergency. She said a money market account, where you can earn 1% interest on your money, is another good liquid option for storing an emergency fund.

2. The 'later' bucket is for short-term goals.

Growth-oriented money lives in the "later" bucket; it's meant to be flexible in how you can take out the money, Drucker said. According to him, this bucket is good for short-term goals such as having a baby or buying a house.

Because these kinds of goals are in the near future and typically require a decent chunk of savings, you want to find something that that can accrue interest but is relatively accessible.

For example, high-yield savings accounts typically offer 1.5% to 2% interest on your savings, which is about 15 to 20 times more than the typical traditional savings account. Because money isn't invested, there's no risk, and you can withdraw when you want.

If you have a fixed date for your goal, a CD (certificate of deposit) account is a good alternative. When you open a CD, you agree to tie your money up for a specific period of time — usually anywhere from three months to five years — in exchange for a fixed annual percentage yield (APY), according to Loudenback. You typically can't access the cash until the CD's maturity date without incurring a penalty.

But these aren't your only options for growth-oriented money. It's best to talk with a financial planner or adviser about your specific short-term goals to pick the right strategy.

3. The 'last' bucket is for long-term goals.

This is where you segment retirement money, according to Drucker. 

Many financial experts will tell you not to depend on social security for retirement — it only comprises about one-third of all the income received by retirees, according to research conducted by United Income and the Social Security Administration. They'll also tell you to save for retirement in both a 401(k) and an IRA.

A 401(k) is an employer-sponsored retirement plan in which you contribute money to an investment account. An IRA is a retirement investment account held at an independent financial institution. There are two types of each: traditional or Roth. Distributions from Roth accounts are tax free, while distributions from traditional accounts are taxed as income.

"We buy ourselves a time horizon with the first two buckets," Drucker said. "This bucket couldn't be touched even if you wanted to."

SEE ALSO: 3 common money mistakes you might be making if you're earning a 6-figure salary and still feel broke, according to experts who work with 'Henrys'

DON'T MISS: 'High earner, not rich yet': How to tell if you're a 'Henry,' based on your salary, savings, and lifestyle

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Business Insider

Keeping up with the Joneses can be the downfall to truly getting rich.

That's why some millennials making six figures feel so broke. They fall victim to lifestyle creep, Gideon Drucker, a certified financial planner at Drucker Wealth and author of the book "How to Avoid H.E.N.R.Y. Syndrome," told Business Insider. Lifestyle creep happens when someone increases their standard of living to match a rise in their discretionary income.

This cohort of millennials — known as Henrys, short for "high earner, not rich yet" — doesn't have a plan to make sure they're saving consistently and automatically. According to Drucker, Henrys only save whatever money they have left at the end of the month after prioritizing all their other needs.

The better financial strategy, he said, is to pay yourself first — allocate money toward savings before your other budgeting categories. Henrys need to take advantage of compound interest to grow their money, he added.

"Henry's don't have an understanding of their time horizons," Drucker said. So, he helps them set up a "bucket" plan that segments money in three ways, based on each Henry's purpose. "Segmenting money allows you to not freak out so much."

Here's what that bucket plan looks like.

1. The 'now' bucket is for current goals.

This bucket is for money sitting in the bank that's easily accessible — also known as liquid money, Drucker said. 

Because it's immediately accessible, cash is the most liquid your money can be. Assets, such as your home or retirement accounts, are the least liquid because they're invested — allowing them to gain value over time, reported Business Insider's Tanza Loudenback.

Mary Beth Storjohann, founder of Workable Wealth, told Loudenback it's best to keep your emergency fund in a cash account so you can access it quickly in the event of an emergency. She said a money market account, where you can earn 1% interest on your money, is another good liquid option for storing an emergency fund.

2. The 'later' bucket is for short-term goals.

Growth-oriented money lives in the "later" bucket; it's meant to be flexible in how you can take out the money, Drucker said. According to him, this bucket is good for short-term goals such as having a baby or buying a house.

Because these kinds of goals are in the near future and typically require a decent chunk of savings, you want to find something that that can accrue interest but is relatively accessible.

For example, high-yield savings accounts typically offer 1.5% to 2% interest on your savings, which is about 15 to 20 times more than the typical traditional savings account. Because money isn't invested, there's no risk, and you can withdraw when you want.

If you have a fixed date for your goal, a CD (certificate of deposit) account is a good alternative. When you open a CD, you agree to tie your money up for a specific period of time — usually anywhere from three months to five years — in exchange for a fixed annual percentage yield (APY), according to Loudenback. You typically can't access the cash until the CD's maturity date without incurring a penalty.

But these aren't your only options for growth-oriented money. It's best to talk with a financial planner or adviser about your specific short-term goals to pick the right strategy.

3. The 'last' bucket is for long-term goals.

This is where you segment retirement money, according to Drucker. 

Many financial experts will tell you not to depend on social security for retirement — it only comprises about one-third of all the income received by retirees, according to research conducted by United Income and the Social Security Administration. They'll also tell you to save for retirement in both a 401(k) and an IRA.

A 401(k) is an employer-sponsored retirement plan in which you contribute money to an investment account. An IRA is a retirement investment account held at an independent financial institution. There are two types of each: traditional or Roth. Distributions from Roth accounts are tax free, while distributions from traditional accounts are taxed as income.

"We buy ourselves a time horizon with the first two buckets," Drucker said. "This bucket couldn't be touched even if you wanted to."

  • Inside the 3-part 'bucket' plan that a financial planner advises for millennials who are earning 6 figures but not saving photo


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