Financial Strategies for Women with Too Much in Savings: My Bucket Method When Your Savings is Too Full

For women who have diligently saved over the years, seeing a substantial sum in their bank accounts can be empowering. However, deciding what to do with those savings can present a challenge. While investing might seem like the logical next step for growing wealth, many women are understandably hesitant to dive headfirst into the complex world of investments.

Let’s revisit my Emergency Fund Savings Recommendations:

• If you have a stable, corporate job -  3-6 months’ worth of expense

• If you are a business owner: 6-12 months’ worth of expenses

I talk to each client about the idea of all extra cash going into buckets corresponding to their goals. After considering the timeline you need the money and the accessibility of the funds then we can decide which bucket the extra money is going into, and where the bucket should be kept or invested.

Bucket 1 – Short term

This is for money you may need in the next year or two.  This money cannot afford to take ANY risk and must be accessible at all times.

Example: I may need money because I have lost my job and have no income - I need to cover my expenses while I find something else. This is where your emergency savings are held. The amount that should go into this account differs from client to client, but we usually fall somewhere between 6-12 months. It’s a balance of math and emotions.

Another use for this bucket is anything you are saving for that you want to pay for in the next 1-2 years. For example, a car, vacation, braces, etc. Don’t risk putting your money into any investments if you need it in the next 24 months. You won’t lose much in terms of inflation and the risk of losing a ton in the market is too high.

This bucket can be held in a bank account, but the best place for it to be right now is an online high-yield savings account. These are currently offering high interest rates and you will be able to access your money at any time

If you don’t need access to your cash for 6 months to a year, a CD may also be a good option for this bucket. Just keep in mind that once your money is in a CD, it is locked down for the term it has promoted (7 months, 9 months, etc.)

Bucket 2 – Intermediate term

This is for money you need in the next 3-5 years. This is money that you don’t need soon but there isn’t quite enough time to invest in something as risky as stocks or mutual funds in the market.

Example: I’ve got my eye on buying a house in that trendy neighborhood, but it will take a few years to save up for it.

This bucket can be held in less risky investments. CDs are a great option for this bucket because they offer great interest rates. Just remember that in exchange for those higher rates, you can’t access your money for a while. Which is just fine since that aligns with the intention of this bucket. CD terms range from 6 months to 5 years.

If you're open to exploring investments but want to minimize risk, consider low-risk options such as bonds, bond funds, or Treasury securities. These investments generally offer more stability than stocks and can provide a steady stream of income through interest payments. While the returns may be lower compared to riskier assets, they offer a reliable way to preserve capital over the intermediate to long term.

Bucket 3 – Long term

This bucket is reserved for investments that you don’t need to cash in for at least 7 -20 years. You’ve got the time to take bigger risks that historically yield bigger rewards and returns.

Example: I just had a baby and need to save for college or, I want to retire at 55. You won’t be taking any money out for a long period of time, but money still needs to go there to accomplish those long-term goals. 

This bucket is where we find your retirement accounts, 529 college savings accounts, mutual funds/ETFs, crypto, ESG funds, and even real estate investments.

Creating a Vision:

Part of my onboarding process is to create a vision board. After this discussion, we look back at the vision board, and decide what should go where.

What buckets are lacking?

What goals do we need to prioritize?

 If the client has no idea how the excess cash should be assigned, I usually advise Bucket #3…investing in the long term. When working with me, I RARELY advise buying individual stocks. The only time I have clients in individual stocks is if the stock is sentimental to them in some way and is a very, very small portion of their overall investments. So when discussing Bucket 3, we usually talk about investing in low-cost index ETFs that will follow the market. 

If you're not into the idea of hoarding cold hard cash in actual tin buckets like a treasure-hunting pirate, fear not! Many online banks now offer virtual folders where you can name them things like "vacation" or "remodel". I highly recommend giving Ally Bank's buckets and boosters a try. They let you create up to 30 savings buckets and set up automatic transfers into them. It's like digital piggy banking with a modern twist!

For women with a surplus of savings, navigating the path forward can seem daunting. However, by adopting a structured approach like my Savings Bucket strategy outlined here, one can effectively allocate their savings surplus to align with their short-term needs and long-term aspirations. Financial empowerment comes not just from accumulating wealth, but from utilizing it wisely to secure a fulfilling future.

Want to learn more about my bucket method? Click below!