What does a bucket and water have to do with savings?
Imagine that your job or business is a faucet. Water from that faucet is used for two things. One is your lifestyle and the other is savings. The bucket represents your savings.
As you live your life, much of the water is used for food, housing, clothing, and a multitude of miscellaneous expenses. Some of the water is diverted to the bucket.
Water accumulates into the bucket in two ways. The first is you pouring water into it. That’s from the faucet. The other way the bucket is filled is via rain. Rain is the return or interest that you earn on that money. Sometimes while carrying the bucket, some of the water spills out and other times you take some out for personal use.
Now, imagine at the bottom of the bucket is a small leak. Maybe one or two percent of the water is leaking out. As you are filling the bucket, the leak is so small, it isn’t noticed. The unnoticed drops are going into another bucket.
The owner of the second bucket sold you your bucket along with hundreds of buckets to others. Some will leak 1%, while others can leak 2% or more. With hundreds of small buckets, he can catch the leaking water from all of the buckets along with the water he received when he sold the buckets.
When you retire, the faucet will be turned off, and you may need to tap your bucket. Hopefully it will rain enough that your bucket never becomes empty.
In some cases, it rains enough that you never notice the leaks. In other cases, you become concerned because it’s obvious that your bucket has less water. You think, “maybe there’s something wrong with my bucket”, so you return the bucket for a new bucket. Or, you decide to try another bucket store.
In 1989, a guy had 100,000 gallons of water in his bucket. His bucket had no leaks. At the end of 2018, he had 1,673,787 gallons of water. Another guy had a bucket with only a 1% leak. At the end of 2018, his bucket had 1,278,270 gallons. Their friend had a shinier bucket with a 2% leak. His bucket at the end of 2018 had 963,758 gallons.
One or two percent sounds small, but over time the drops of water add up. Just 1% cost one guy 395 thousand gallons of water while 2% cost the other guy 710 thousand gallons.
For only a couple gallons of water a year, you can learn about the buckets with no leaks, where to find them, along with help on how to use your faucet more efficiently.
We can’t control the rain or the water that spills out, but we can plug the leak that is filling someone else’s bucket.