Broker Check

Practical Planning Tip: Financial Planning Basic - Mid-Term Bucket

March 04, 2024

Today we will continue our discussion on the basics of financial planning by using the bucket approach. We already discussed the short-term bucket and the long-term bucket, so we will now discuss the MID-TERM Bucket: So, 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 fund, 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. And I can go on at length discussing how to invest money efficiently within a taxable account, but that is a conversation for another time…


The midterm account funds may be money you want to access before retirement meaning before 59 ½, which is 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 TODAY!


You can WATCH the full video here.