The Buffer

Requirements: A budget. If you do not already have a budget, you need to start there first.

Table of Contents

  1. What is a buffer?
  2. How do you create a buffer?
  3. Using your buffer (new section!)
  4. Frequently Asked Questions

What is a buffer?

Simply put, having a buffer means: any money you receive this month is not spent until next month. There is a buffer between the time you receive your money and spend it. In February you spend money you received from paychecks in January. In March you spend money you received from paychecks in February. And on, and on…

There are 3 main reasons that everyone should have a buffer:

  1. Break the paycheck-to-paycheck cycle. With a buffer, it doesn’t matter if you get paid on the 7th or the 14th or the 28th. It doesn’t matter if you car bill is due on the 1st or the 31st. The money you use to pay your bills is already in your bank account from last month.
  2. Get rid of the end-of-the-month stress. You might have money in your savings account, but your checking account always creeps close to $0.00 near the end of every month. With a buffer, you have up to a months worth of income in your checking account as a buffer, and the end-of-the-month stress is gone.
  3. Set yourself up for success next month. The proper way to budget is by budgeting money you already have. If you budget money you don’t have yet, you are playing a dangerous game. With a buffer, on the 1st of every month, you can correctly budget for your month using the money you already earned the last month.

How do you create a buffer?

To create a buffer you need to save one month’s income. If you have a set income, I recommend you save exactly one month’s take-home income. If you already have an emergency fund or savings, you can opt to use some of those funds to instantly create your buffer (skip to step #3). So, how do you create a buffer?

  1. Create a budget category, Buffer, with a target goal of one month’s income.
  2. Save money every month and put this in your Buffer category until you reach your target goal.
  3. The month after you reach your target goal, use the money from your Buffer category for that month’s spending. You can now “remove” your Buffer category. If you already had money saved to use as your buffer, move that money into your checking account and use it for that month’s spending.
  4. Put the paychecks you receive during this month in your checking account for use during the next month.

Congrats! You now have a buffer. From this point on, you will “save” your paychecks for the next month!


Using Your Buffer

Now that you have a buffer, what does the budgeting process look like?

Let’s say it is February 1st, a saturday morning. You sit down with a fresh cup of coffee ready to do your monthly budget. Because you have a buffer, you know that you will be spending money in February that you earned in January. So looking at your finances, you see 4 paychecks for January. Two for you, and two for your spouse. Totaling them up you get exactly $4,212.

Now you know exactly how many dollars need a job assigned to them. You must give each 4,212 dollars a job, whether it is to buy groceries, or electricity, or to save for a car. Beside you is your annual budget. It also has a monthly column. That is your “template” to help create your month’s true budget. You have already created your annual budget based on your prediction of your expenses & incomes.

You begin to budget your month. $300 for groceries, now you have $3,912 left. $100 for television and internet, now you have $3,812 left… and on, and on. It is important to understand what you are doing here. Using your pre-made budget “template”, you are making your true monthly budget by assigning dollars to categories. These dollars come from last month’s income. They are not made up dollars. They are not just random dollars you have floating around in your bank account. They are last month’s income dollars, ready to go to work for you.

The guesswork is gone. You know exactly how much you have to spend. Let’s say you get down to the last column of your budget, Car Purchase Savings. On your annual budget, you had put down $500 a month. Well, this month you only have $388 left out of your $4,212. Guess what, you can only save $388. And that’s okay. Maybe you had to budget for something unexpected, or you missed a few days at work and so your income was a bit lower. The important thing is your February budget is accurate down to the last dollar. You know where every one of them is going. This knowledge over time will help you gain the comfort and freedom you desire.


Frequently Asked Questions

Is my buffer part of my emergency fund?

It’s best to think of a buffer and your emergency fund as separate things. Your emergency fund is money that has been set aside for emergencies. Your buffer is money that has been set aside for next month. Having a buffer, however, does improve your financial situation as a whole, and it can keep you from having to dive into your emergency fund.

I get paid on the 1st/n-th/end-of-the-month/31st. How does this affect my buffer?

The answer to this is really up to you. For us, any paycheck that posts in one month is used the next month, as simple as that. If you receive your entire paycheck on the last few days of each month, you might benefit from having a full month in between receiving your paycheck and using it. But, try something out & make adjustments.

Wait, what is this Buffer category in my budget? Do I put my paychecks there every month?

Your Buffer category is only there for you to build up your initial buffer. Once you are fully “buffered”, you can get rid of it. You will use the money there for the next month’s expenses. For the months that follow, you can deposit your checks into your checking account. Then, when it’s time to budget for the next month, you will use the money you have deposited into your account the previous month. If simply “leaving” your money in your checking account is confusing to you, feel free to keep the buffer category and immediately assign those dollars to that category. Then, when it’s time to budget them, you can remove them from the buffer category and give them the real jobs they need to have.

How can I start budgeting?

I am a big YNAB fan. Click here to get a free month of YNAB (and give me a free month). What I have to pay for a budgeting service? Believe me, you will make the money back and a lot more with the savings YNAB will bring you.


If you have any more questions feel free to ask: Contact Me

Published: May 8, 2017