Do you need a Buffer?
Are you seeing the dreaded NSF (non-sufficient funds) notice on your bank account? Panic sets in, you are sweating, heart starts to race, and you feel like it’s hard to breathe because you know more charges and expenses are going to come up before you get paid again. The bank charged you $32 and you know you can’t cover the cost of everything and yet automatic withdrawals are still going to post to your account and before you know it you owe the bank more in fees than all the little costs that came through to send you over the end of your money. If you are in this place, take a deep breath. Seriously, not having a buffer can put you in a place of panic, as I described that situation you might have even felt a lump in your throat if you have been there in the past just remembering that feeling.
So what is a checking buffer? It is money in between you and your bills. It is a set amount that you keep as a safety net preventing overdraft fees and stress. Your buffer becomes the new 0 in your account. If you have $0 as the bottom of your account, there is a higher chance that you will end up going below that from unexpected charges. When you decide on a buffer you set the amount and choose not to go below that amount. If $500 is your buffer amount you don’t spend as if you have $500 left in your account you spend like you have $0 when there is $500. This money is not money you budget to spend or save either this is simply in the account as a protection method against surprise charges.
Having a buffer helps reduce stress because you know there is always a set amount in your account. You will get a peace of mind knowing you can cover expenses and manage timing gaps between paychecks and bills being due. The money just hangs out in your checking account reminding you that you are safe and expenses are covered. When you have experienced the stress of not having enough money in your account, seeing that buffer there will feel like a big win if you never feel that stress again.
Another type of buffer is an emergency fund. This is a larger amount of money between you and urgent and unexpected expenses. These types of expenses would include events like job loss, major medical expenses, car breakdown, and other unplanned, unavoidable cost that need to be dealt with in a pressing manner. What is not an emergency expenses: vacations or travel, holiday costs, gifts, routine car maintenance, or other expenses that can be planned or put off. Ask yourself if I don’t cover this expense will it directly affect my ability to pay for food, utilities, housing, or transportation? If the answer is yes, it is probably an emergency. That is when you use your emergency fund. If the costs can wait or you can save up for the expense, then don’t use the emergency fund. I believe you should start with a smaller emergency fund and then once you have no debt, up your emergency fund to cover 3-6 months.
I recommend $2000 for a starter emergency fund. That covers the cost of the majority of major unexpected expenses. Then when you are ready to up it to cover 3-6 months, figure out your base essential monthly costs (food, housing, transport, insurance, utilities, and other non-negotiable costs) then multiply that total by the number of months you feel comfortable with as your target goal. I recommend 3 months if you have a dual income with reasonable job security and no debt or if you are single with a stable job. You can increase the amount as you see needed to feel safe and secure. I recommend going to the higher savings amount of 6 months if you are a single parent, have unstable employment like being self-employed or work commission jobs or are married and have a one income family.
If you have both a Checking Buffer and an Emergency Fund you will build a sense of financial security in your accounts and your life. The checking buffer will help you day to day and the emergency fund helps you be able to avoid the feeling of even having an emergency. With these two types of buffers in your life you will stress less and feel more confident and in control of your money and life.
