Asset Allocation (Part 3): The Dream Bucket

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The “dream bucket” is the third and final post in a series from Dr. Peter Kim describing his personal asset allocation based on an outline from Tony Robbins.

The first two buckets made a lot of sense to me.

You’ve got a security bucket that has low-risk investments like cash, bonds, home equity, annuities, and other fixed income vehicles.

The second bucket is the risk / growth bucket. It holds your higher risk assets like stocks, real estate, precious metals, and the like.

The dream bucket isn’t exactly a part of your asset allocation like buckets one and two. To me, it’s more of a collection of things you’d like to do with the money when you’ve been successful in filling the first two buckets.

I suppose you could say bucket number three is for the overflow, but it’s not exactly a part of a typical asset allocation. But if a really tall self-help guru with incredibly white teeth says it is, who am I to argue?

This post originally appeared on Passive Income MD.

 

Dream-Bucket

 

Asset Allocation (Part 3): The Dream Bucket

 

Welcome to Part 3 in the Asset Allocation series. In the first two posts, I talked about asset allocations and the three different buckets: Security bucketRisk/Growth bucket, and the Dream bucket.

Please read those posts if you haven’t, as this post builds on the ideas discussed there.

As a quick recap, I came up with my own current and ideal asset allocation:

  • 40% Security Bucket
  • 50% Risk/Growth Bucket
  • 10% Dream Bucket

 

I also discussed what makes up my security and risk/growth buckets. This post will focus on the final allocation: the dream bucket.

 

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Dream Bucket

 

To be quite honest, this is my favorite bucket of the three – and I know I’m not alone. After all, how many of you already know what’d you do with the money if you won the lottery?

Well, the dream bucket contains the money that’s free to spend on the things you really want to do and experiences you want to enjoy. You’ve put in the work, gotten a nice job, taken that income, and placed it in your security and risk/growth buckets. You’ve created financial freedom.

But, of course, you still want to live your life. You need to enjoy some of the fruits of your hard labor and use it to enhance the lives of the people you love.

I don’t want to have to wait twenty years to begin enjoying life. I believe that if you’re responsible with how you utilize your funds, then you should feel free to use the rest to live an awesome life.

 

What’s in the Dream Bucket?

 

The dream bucket is filled with fun and fulfilling stuff. The list may include:

  • Vacations
  • Cars
  • Luxury goods
  • Electronics
  • Additional Charitable giving
  • And more

 

Everyone is different, and everyone’s dream bucket will include different things at different priorities. In fact, I think you learn a lot about people by what they place in their dream bucket. You begin to learn what their desires are, what they appreciate, and what they strive for.

I like to think of my dream bucket in terms of emotions. I want the things in my dream bucket to elicit happiness, fun, excitement, and fulfillment for myself and my family. So, let’s break that down into a few more specifics.

 

Fun & Excitement

 

Let’s be honest: we work hard, we want to play hard. And I don’t think there’s anything wrong with that. I try not to money-shame anyone. If that car means a lot to you and you find real value in it, who am I to say you spent too much on it?

Maybe you want to spend money on travel. To take it a step further, maybe you want to travel upgraded. I say great! It’s nice to dream without limitations.

For me, the dream bucket is packed with travel. I love traveling, and I definitely don’t do it enough. Money is not usually the limiting factor, though. It’s free time that I often find myself short on. Still, what goes into the dream bucket can certainly affect how we travel.

Stewart Butterfield, the founder of Slack and Flickr described wealth not in monetary value, but in the following three levels:

 

Level 1: I’m not stressed about debt

Level 2: I don’t care what stuff costs in restaurants

Level 3: I don’t care what a vacation costs

 

This is important for the dream bucket because I want to be at level 3. I’d like to stay in whatever hotel without worry  – I don’t want my budget to limit my options. And wouldn’t it be nice to travel first or business class all the time? Imagine never flying coach again!

Admittedly, this might sound superficial. But let’s be honest. If you were given the choice, would you fly upgraded?

Finally, I’ve always wanted to own part of a sports franchise. I’m a huge sports fan, and I’ve always thought that I could make an impact as an owner. Why not? After all, this is the dream bucket.

 

[PoF: I’m not convinced of Mr. Butterfield’s three levels of wealth. There’s a big difference between “I don’t care” and “It won’t make a material difference in my ability to maintain wealth.”

Using the latter, I’d be somewhere around level 2.5,  but the fact is that I will always care about the cost of things. I believe in being a good steward of money, and there are uses for money that are more important than how fancy my dinner is or how lavish the vacation.

If this is the dream bucket and charitable giving belongs in there, I don’t see how one can stop caring about the price of things; particularly when spending on one’s own self.]

 

 

Impact

 

Quality possessions and experiences are great. But how many people have you known someone who seemed to have everything, but still lacked fulfillment?

It’s important to keep striving for something, but I’m a firm believer that it’s equally important to give back.

My goal is to help provide basic necessities to people who don’t have access to them – whether it be housing, food, or even just clean water. It may sound cliche to say that I want to change the world, but once again, this is the dream bucket we’re talking about.

Lately I’ve been impressed by a few organizations, and I’m excited by their vision. If you’re looking for a great charity, consider a few of the following:

 

It’s important to note that giving back doesn’t need to be relegated exclusively to the dream bucket; I do already budget a portion of my income to giving. But, the dream bucket could allow for much greater impact.

 

Summary

 

The idea of buckets can be a very helpful way to visualize your finances. It not only helps you allocate funds where you want them, but it can also help you achieve your goals.

When I began utilizing this method, I made sure that I knew what assets I had in each bucket and whether the current allocation was at my ideal amount.

I then discovered that I needed to allocate more to the security bucket and less to the risk/growth bucket. Changes will happen, and that’s what makes this model effective.

The key is to find a plan that makes sense, follow it, measure it, and be open to adjustments in the future.

 

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What assets do you have in each of your buckets? What’s your ideal allocation?

5 thoughts on “Asset Allocation (Part 3): The Dream Bucket”

  1. Subscribe to get more great content like this, an awesome spreadsheet, and more!
  2. I’m having a hard time wrapping my head around how this is an allocation strategy. In early accumulation mode, it doesn’t make much sense at all because you are really deciding how to direct your income stream towards various goals.

    In retirement, I can see myself periodically (every few years) figuring out how much we need to live on and support our lifestyle (at a comfortable level) and then taking some of what is left over and assigning it (as a dollar amount) to a dream bucket. That would give us permission to take that round the world cruise or establish an scholarship at my alma mater or pay the grandchild’s college tuition. However, spending from that dream bucket drains the bucket and the bucket is only going to refill if my other buckets do better than expected (overflow) or my needs change (other buckets shrink).

    The writer lists mostly mostly luxury purchases and charitable giving for the dream bucket instead of directing specific assets as they did for the other 2 buckets. Using these buckets is more of a mental accounting (I have more than enough) to give permission to use your excess for dreams, which is a very worthwhile exercise. However, if the writer drains and refills the dream bucket every year, that would be a 10% (or greater) withdrawal rate, so it’s not really a very good allocation strategy.

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  3. As a young guy, I don’t have a dream bucket yet. I’d say I have 70% in my risk/growth bucket and 30% in my safe bucket. I think once I have a big enough emergency fund, I will allocate a majority of my funds to the growth bucket and start thinking about the dream bucket.

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