Buckets of Money

Ideally, each one of us who is above 18 and earning should start thinking about finance .. a little bit of it is not that bad. Wait .. to all the people just out of their teens, I am not asking you to start planning your retirement now, chill .... you have lots of time, or do you??? he he ...

See the golden rule I beleive in is

"Do not sacrifice enjoying your present for the future, however do not splurge in your present so that you can have a future"

Now, having set some context, I beleive that each individual should have three buckets of money for him/family

The Emergency Bucket
This should typically be the 6-12 times of your monthly expenses (including EMIs). I say 6-12 times, as it depends on the nature of your Job, size of your family, health of your family members and so on .. So, you decide your number. I prefer it above 9.

Typically, for this fund 25% should easily sit in your bank accounts as Fixed deposits and rest 75% should be working hard in liquid funds (of course for better returns).

The 0-5 Year Bucket
This money bucket is for your goals that are pretty near from today. For some its marriage (yes, its a huge affair in India), for others it could be education, car or even a house (you can't really save to buy a house, but at-least for the lumpsum contribution that bank needs on your part for giving a home loan).

Typically, if its 0-3 years i would recommend you to stick to carefully chosen debt and liquid funds, with slight exposure to equity funds. However, if it's 3-5 years then, make it more spicy having a higher quantum of equity. But don't go overboard, you should not have more than 25% of equity exposure for this whole bucket.

The 5 and Beyond Bucket
This money bucket is for your goals that are pretty distant, retirement, kids education/marriage could be the goals that fit here. They are so far in life, that you can safely put your money in equity and forget it till the time you are nearing your goal date.

Typically, this money would go in balanced funds or complete equity funds. You may try hands on with direct equity exposure, however this requires lots of tracking and no one is paying you for that. Plus you will never get the enough diversification you need to reduce the risk. Hence, recommendation is to go with mutual funds only. 80%+ equity exposure should help you save enough for your goals, the return you can expect easily is 12% (always make conservative estimates).

So, you have your bucket's sorted out now, or not?