The bucket list: How to organize your money with intent
Are we always rational about money? When we think about it, the value we assign may not always align with our intentions
Opportunities and challenges
Money. It’s a tricky concept in many ways, introducing both opportunities and challenges. When we think about wealth, we often think in terms of different “mental” accounts. In other words, we assign different values to, and uses for, money based on a variety of factors. These might include where it came from (inherited or gained through years of work) and what we intend to do with it (spend on lifestyle or give to charity, for example).
From mental accounts to physical ones
When you consider all your mental accounts—the sources of your money, and how you may use them—you might find it helpful to establish a more precise, physical framework of “buckets.” This system allows you to regularly review the structure of your capital, to identify if behaviors truly align with what you are trying to accomplish.
Organize with intention
People may find it empowering to organize their money in four buckets: liquidity (cash), lifestyle (spending), legacy, and growth. This way, they can make sure that their money is organized and utilized in a way that supports their intentions and values.
Liquidity (cash)
Many investors will plan for a contingency, to have enough money on hand to feel psychologically safe through the turmoil of markets, business cycles and life events. The goal is to ensure that spending or lifestyles will not be unexpectedly restricted or result in the sale of assets at the wrong time (i.e., sell low). Within the liquidity bucket, we want to have enough operating cash reserves for typical lifestyle expenses, big purchases or even for opportunistic purposes.
Lifestyle (spending)
By allocating strategically, investors can have more certainty to maintain lifestyle needs and wants for the rest of their lives. If, for example, they faced a large loss of capital in a business or concentrated investment—or a life event that left principal earners unable to work—this bucket would have enough money to mitigate adverse effects, and maintain a consistent way of living. Its contents are specifically tailored to an individual or family’s definition of ‘lifestyle.’
Legacy
The first two buckets hold money set aside for use within one’s lifetime, while the legacy bucket contains money meant to be used either during or after one’s lifespan. But there is some flexibility here. If the lifestyle portion is drained too early due to factors such as longevity, the legacy bucket can provide support to achieve a minimum level of wealth. In addition, this bucket may also be utilized for family gifts—either outright or via more complex wealth planning structures—as well as philanthropic gifts by way of family foundations.
Growth
It is important to note that the contents of the aforementioned segments of wealth—liquidity, lifestyle and legacy—are all meant to be consumed. The fourth and final bucket has a different and distinct purpose. It is intended for long-term capital growth, which could serve as the foundation for intergenerational wealth or philanthropic giving in perpetuity.
Aligning goals with your buckets
For many of us, the concept of bucketing is a new way of organizing our thoughts around wealth. On the other hand, we all tend to have more or less developed ideas around our goals. An objective has three fundamental pillars: label, desired dollar amount and time horizon.
This matters because different buckets have different goals, time horizons and priority levels. Naturally, each will have dissimilar portfolio sizes and wealth strategies.
From awareness to action
Aligning your intentions with your wealth strategies is an ongoing process. It can begin at any stage of your journey. The strategies that serve your various goals may also evolve over time. For example, when you are younger you might not be sure how much wealth you will accumulate, or where it should go. As you get older, you may consider transitioning to more permanent wealth structures as you clarify your giving to your family or community. Whatever your intentions, get started. When you formally identify the buckets that apply to you and align them with your intentions, you can have much greater confidence in the long-term outcome of your wealth strategy.
This practical framework addresses some basic but important questions that can provide you with the peace of mind that your wealth is having its intended impact.
A few questions to get you started. Speak with your J.P. Morgan team to create your goals-based plan today.
- Are you planning on any significant purchases or financial commitments in the near term?
- Do you anticipate any outsized outflows?
- How much capital would you like to have available for compelling investment opportunities, or for tactical deployment in market dislocations?
- How much cash would you need to tide you through market volatility and business cycles, or for an unforeseen event?
- What amount would you annually require to live as comfortably as you currently do?
- Are there any large outflows that you need to plan for?
- Do you anticipate any significant changes to your lifestyle needs over time?
- Are there any goals related to family members or loved ones that you view as a part of your lifestyle needs (education for children or grandchildren as an example)?
- Are there any other goals that you consider a part of your lifestyle?
- How would you define success when it comes to you, your business, your family and your legacy?
- What do you want your legacy to be?
- Do you have any goals meant to benefit people during or beyond your lifetime?
- Who is the wealth meant for?
- When do you want to transition assets/holdings?
- What would you like to give? Cash, investments, real estate, collectibles etc.?
- What would you like to achieve with your wealth?
- Who will own and steward assets beyond your lifetime? Family members, family office, professionals?
- How do you view your concentrated assets?
