Have you ever had an unexpected bill set you back and make you go deeper into debt? Those new tires set you back $400. That trip to the doc cost $800! Or that time your electric bill doubled in one month! It happens to all of us. So, what’s the best way to deal with an unexpected expense? A buffer month of money has prevented me from going into debt, and it could help you too.
What’s a Money Buffer?
A buffer is something that protects you from bad things. It’s something that stands between you and trouble. Money is a cause for trouble in almost everybody’s life (sooner or later). A money buffer stands between you and money stress.
Having a money buffer means that you have a month’s worth of paychecks already in your bank account ready to pay for this month’s expenses. This means you’re paying for July’s bills using June’s paychecks. If that sounds backwards, it’s not. It’s forward-thinking, and if you build this buffer, your life will be so much less stressful.
It doesn’t matter when any of your bills are taken from your account. A buffer month means the money will be there ready to pay all of them. And if your paycheck comes a day or two late because of some holiday, or some mistake by the HR department, it won’t affect you. Because this month’s paycheck is going to hang out in your account to pay for next month’s bills!
How to Build a One Month Money Buffer
The first step to building a money buffer is to know how much money you bring home each month. Your target number to have saved is one month’s worth of income. How much do you make each month? (I hope you’re remembering your last paycheck number and multiplying it by 2 or 4. Please don’t make the mistake of dividing your annual salary by 12.) And not everybody has regular income. That’s fine too. Try to figure out how much you (and your partner if you’re sharing finances) bring home each month.
The next step is to have a general idea of where your money is going. You need to know where you can start cutting back, or where you can redirect some of this month’s money to save for next month. If you have money in a savings account already, you can put some (or all) of that toward your buffer. You’ll definitely want to have a proper Emergency Fund eventually, but if you’re stressing about bills getting paid, checks clearing, and not being able to pay for an unexpected expense, a money buffer comes before an emergency fund.
Find Your Current Buffer
Start with savings. If you have one month’s worth of take-home pay saved up in a savings account somewhere, move it over to your primary checking account to be ready to pay for this month’s bills. This is what I did, and it’s the easiest way to start.
Next, do you contribute to a 401(k) or other retirement account? I hate to give up free money if you’re getting a match from your employer, but life will be a lot less stressful for you if you have a money buffer. Temporarily stop contributing to your 401(k) or retirement account to build up a money buffer equal to one month’s income. Don’t forget to start contributing again as soon as you have that one month ready.
Spend a Little Less, Earn a Little More
If you’re like most Americans, you may not have enough in savings and you aren’t contributing to any retirement account. You’ll definitely want to fix that later, but the money buffer is the first step toward a rich life. Where can you cut back? Where do you spend money that you don’t have to spend? Could you eat out less? Start bringing your lunch to work? Cut your cable TV off for a couple of months? Trade paying $85-$100 a month on cable TV for $13/mo for Netflix. You already have Netflix? Then just cut the cable TV and watch Netflix only for a few months. There are a million ways to find your current buffer and start building it up to equal one month’s worth of take-home pay. Whatever you can do to cut expenses, do it temporarily while you build a month’s worth of money buffer.
Work overtime or pick up some weekend work (cut grass, deliver pizzas, drive for Lyft, etc.). If you’re serious about taking control of your money and living a rich life, you’re going to have to work a little extra to earn it. I worked extra hours to build a side hustle business that paid for my entire masters degree from Harvard. If I can do it, you can do it, too! Life is so much more enjoyable not having to worry about money. If you have to work a little overtime to build a money buffer, it’ll be worth it.
Life With a Money Buffer
Imagine setting all of your bills to auto-pay, and not worrying about when those bills come out of your account. Imagine not worrying about when your paycheck is going to clear, or when that deposit is going to hit your account. You’ll never have to call your bank to ask if your deposit has cleared. Your car payment coming out on the 2nd or 4th or 19th of the month won’t matter. You’ll have the money to pay for all the normal bills. It’s a life-changing feeling, and you don’t have to be rich to experience this. You just have to build a buffer.
Buffer don’t Suffer. Once you get your money buffer, build up a proper Emergency Fund.