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My last piece discussed the basics of investing utilizing a birthday cake analogy. This article will discuss the related topic of financial planning using the “bucket approach.” Hopefully, this will make the financial planning concepts more accessible and understandable to readers. Ultimately, my goal is for folks to apply these important concepts more seamlessly to their own situations.

Before jumping into the buckets, it’s important to define the concept of “financial planning” itself. In short, financial planning is an ongoing process that evaluates a family’s entire financial picture in order to create strategies for achieving their short- and long-term goals. This means being more intentional about where you put each of your dollars to help you achieve your objectives. This process of efficiently managing your assets can help increase the likelihood of financial success.



Short-term Bucket: The cornerstone of financial planning is proper cash flow management. In plain English, this means spending less money than you make and always having an ample cash cushion for a rainy day. So, how much money is needed in this rainy day, or short-term bucket, category? The answer really depends on personal circumstances, but three to sixth months’ worth of expense money is a good guideline. This necessitates evaluating your monthly expenses and allocating somewhere between three and six times that amount in your checking account in case you need it for an unforeseen expense.

Naturally, some people with a steady income may want to maintain less cash, and others with more volatile incomes may want to have more cash on hand. Furthermore, folks who expect a near term major financial outlay, like a downpayment on a house, a bar/bat mitzvah, or an upcoming chasana, will want to keep more cash on hand to pay for these near-term expenses.

The last point worth mentioning in this category is how to invest these funds. Remember, the key with this money is that it should not fluctuate in value and it should be readily accessible in case of emergency. This means the funds should literally be sitting in cash or a money market fund with a high level of liquidity. Money market funds pay approximately 5% in this market, but that won’t last forever and wasn’t the case for years. However, even if there are more attractive opportunities elsewhere, and there will be, it would come with some level of risk. Getting the best return on this cash is not important. It’s crucial that these funds stay safe and liquid.


Long-term Bucket: In terms of importance, the long-term bucket is the next focal point. These are funds earmarked for decades in the future. They are being saved and invested to give you the option to retire at some point down the road. Most people don’t want to work forever and many people do not have the luxury of continuing to work as their health deteriorates with age. That’s why saving for retirement is important.

There are many wonderful, tax advantaged accounts to help investors save for retirement. This includes an Individual Retirement Account (IRA), 401(k) through a for profit company, 403(b) for a nonprofit organization, government plans, SEP, SIMPLE IRAs, and more. Some employers may even contribute to their employee’s retirement account, which makes saving for retirement more manageable.

There are rules of thumb for retirement savings. Someone starting to save in their mid-20s or early 30s, should allocate 10% to 15% of their income for retirement, including any employer match. If someone starts saving later in their career, this amount will necessarily need to be greater to meet retirement goals.

From a tax perspective, many investors have both a traditional and Roth option. Traditional accounts invest pre-tax funds, the money grows tax deferred, and then the investor pays tax when the funds are withdrawn. In Roth funds, on the other hand, the investor contributes after tax dollars, the money grows tax deferred, and when the money is withdrawn there is no tax paid. Determining the optimal strategy for you depends on your personal tax situation and retirement plans, so it’s worth speaking to your financial advisor. However, the most important aspect of all is making sure that you are socking away enough money towards retirement and investing it prudently. The tax benefits are secondary.


Mid-term Bucket: Once the first two buckets are satisfied, some families may be in a position to explore the mid-term bucket. Not everyone has the luxury of having extra cash after monthly bills, an emergency funds, and retirement savings. However, many of the clients I work with do have surplus cash flow and aren’t sure how to best allocate those dollars to achieve their various other goals.

The best solution is to invest these extra funds within a standard investment account. This account may be held individually, jointly, or within a trust. However, the common theme is that, unlike a retirement account, there likely won’t be any favorable tax treatment so the money should be invested in a more tax efficient manner. Given the scope of this article, I’ll leave it at that, but recognize that a whole article can be written just about how to be more tax efficient with these funds.

These funds may be money you want to access before retirement (i.e. before 59 ½, the youngest age that you can dip into retirement funds without a penalty). It should also be funds that you don’t anticipate needing within at least five years so you can afford to take some risks to achieve higher returns. The key is structuring these investments based on your specific goals. Perhaps you want these funds to provide you the flexibility to work part time ten years before your full retirement. Some clients plan to buy a vacation home and are investing toward that goal. Others want to leave a larger nest egg to their beneficiaries.

There are an infinite number of options for how to position this money based on one’s objectives. The one universal strategy that I emphasize with my clients is to automate the money going into this account. This means determining how much money you can afford to contribute every month and having those funds automatically moved from your checking account to be invested in this account. This prevents emotional decisions from entering into the process or spending these funds frivolously on things you don’t actually need. The amount you automatically deposit can always be modified, but it’s important to get started.


Beyond the Buckets: Not all financial planning fits within this three-bucket framework. Some additional important items that every family needs to discuss include life insurance, disability insurance, and long-term care insurance. Together those can protect your bucket system should certain unfortunate circumstances arise by ensuring you don’t need to start liquidating your funds, which would derail you from achieving your goals.

There are also other tax advantaged accounts that should be explored, if relevant. This includes 529 college savings accounts to save for higher education and Health Savings Accounts (HSAs) to save for healthcare expenses.

Finally, estate planning should be a part of every family’s strategy. This may come in the form of investing funds for beyond your lifetime to leave to loved ones or charity. However, it also comes into play with how you want your assets and affairs handled if you are no longer well or living. To ensure your wishes are properly carried out, every person should have a will, health care proxy, power of attorney, and advanced medical directive. There are also corresponding halachic documents for your estate plan. It’s worth speaking with an attorney who is familiar with both the legal and halachic aspects of these areas to ensure you plan appropriately.

For any reader who made it through this article, congratulations! You now know more about financial planning than the overwhelming majority of your friends and fellow countrymen! The next step is putting it into effect. Don’t procrastinate. Get it done today!

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Jonathan I. Shenkman, AIF® is the President and Chief Investment Officer of ParkBridge Wealth Management. In this role he acts in a fiduciary capacity to help his clients achieve their financial goals. He publishes regularly in financial periodicals such as Barron’s, CNBC, Forbes, Kiplinger, and The Wall Street Journal. He also hosts numerous webinars on various wealth management topics. Jonathan lives in West Hempstead with his family. You can follow Jonathan on Twitter/YouTube/Instagram @JonathanOnMoney.