Building a Budget Buffer

Are you paid at intervals other than once a month and find that directing paychecks to their corresponding bills can be a major headache? You need a budget buffer.

Many of my clients find that some paychecks have more bills to pay while others have fewer, creating a feast or famine cycle throughout the month. 

This can quickly create a domino effect of reactive credit card spending and playing catch up.

No fun!

So, what’s a person to do? 

Here are 3 steps you can take to get ahead of those bills!

Step 1: Get Organized

If you’ve never sat down to write out all your bills and the dates in which they are due, well, consider today your day!

Start by jotting down each paycheck with the date it is scheduled to hit your account.

Next, underneath each paycheck, write out the corresponding bills that are expected to be covered before your next payment rolls around.  

Many budgeting apps, like EveryDollar Premium, have features that allow you to assign bills to paychecks.  We created a video walk-thru of EveryDollar’s new Paycheck Planning feature that you can watch here.

After laying it all out, you might find that you have too many bills assigned to a given paycheck. In some cases, this might mean calling some of your service providers and asking for different due dates. 

Also, you may choose to hold off on any extra spending (like for clothing, haircuts, etc) until the next paycheck rolls around.

Another great option is to create a cushion in your checking account…which brings us to the next step!

Step 2: Build a Buffer

Let’s talk about Henry.

Henry gets paid $1,250 per week and his first paycheck is scheduled to come in on the 1^st.

That paycheck needs to cover his $1,200 rent, which only leaves him with $50 for groceries, gas and other expenses until next week’s income rolls around! 

Wouldn’t it be nice if Henry just had an extra $1,250 sitting around, ready to save the day? I think yes. And that, my friends, would be what we call the Budget Buffer.  

So how can you build a budget buffer?

Going back to Henry’s example – what he might consider doing is setting aside $300 with each week’s paycheck into a separate savings account. 

When his rent is due, he’ll have the full amount ready to go.  All he needs to do is transfer that buffer back over to his checking account and continue setting aside $300 each week!

Paid twice a month?  No biggie!  Set aside half of your mortgage/rent with each paycheck! 

Now, let’s say you’re paid bi-weekly (every two weeks). You might already know that this means that two months out of the year, you will receive three paychecks instead of two. Boom!  One of those extra payments could serve as your buffer!

We’ve put a video together walking you through how to find those extra paychecks. You can watch that video here.

Step 3: Get a Month Ahead

Now that you’ve relieved unpredictability by scheduling your bills with their corresponding paychecks and you’re building that budget buffer, it’s time to take things to the next level!

You might consider keeping that momentum going by getting an entire month ahead on your paychecks. This means funding the current month with last month’s income!

Another great budgeting app, “You Need a Budget”, is a big proponent of this strategy and for good reason. This step provides ultimate predictability and security!

To do this, consider setting just a little more aside with each paycheck than you were in Step 2. In time, you’ll notice you have a month’s worth of income on stand-by.

When that happens, transfer all that money over to your checking account on the 1^st. Now you can budget for the entire month without having to coordinate paychecks to bills ever again!

If you’re paid bi-weekly (every two weeks), just set aside both of those previously mentioned extra paychecks into a separate savings account and suddenly you’re a month ahead! 

 Moving forward, when each paycheck comes in, you can automatically have it deposited into your savings account where it will wait its turn to be used the following month. 

Your days of having to coordinate bills to their paychecks and/or ending each month with a big fat zero are over. Goodbye feast or famine.  Goodbye paycheck-to-paycheck living!

Want to create a Budget Buffer with more speed?  Awesome!  You might decide to sell something, go on a spending freeze, or temporarily take on an odd job. 

Whatever you do, keep budgeting, and keep being intentional.  I promise it’s worth it.

 Of course, I can’t possibly cover every scenario in one blog. If you find that you are having a hard time figuring this out, get some help. Click here to book a Kickstarter call with me. We’ll get you headed in the right direction!