No income, big savings
At the moment I have no income (in between jobs, I hope), but a lot of money in savings. I have more than $100,000 from an inheritance. I didn't put it in the stock market before the election, and ow the market is too high. So I sit on the cash and feel rich.
My question is: how do I make a budget when there is a giant buffer but no income? I guess I need to decide how much I need a month, but so far, I am just filling categories as recorded expenditures come in. That is not really a budget, is it?
I had a similar issue when I transitioned from working to retired. I had a large pile of cash, and about 6 months to get through before the ongoing retired cash flows would be stabilized. Essentially, the cash was parked in a category named "Buffer" and I'd do a monthly split transaction, e.g. Total $0, Buffer $1000 outflow, Income $1000 inflow. Then I would budget normally. The pile of cash still sits there being huge, but the budget puts structure and discipline on the spending. Then when my situation stabilized, excess cash went into the investment account to produce more retirement income. The amount transferred from Buffer to Income phased down as various retirement income sources came online; you may find a lesser need for a Buffer to Income transfer after you start working again, but still need to transfer something until your new working cash flow has stabilized.
The trick is to figure out how much of your pile of cash you need for budget income, then dole that out month by month until your ongoing circumstances become stable. The more important consideration is a bit broader than the budget issue: How much of that pile of cash do you want to preserve for after your situation stabilizes? Obviously, you won't keep the entire $100K; but it's nicer to have $80K left to invest when you're working again than $40K. Keeping that in the back of your mind may help you make better budget decisions.
To the question of how much you need every month.
What was your income before your status became 'in between jobs'. That might be a starting number you can use to work from, your previous monthly income. Of that income, did you spend it all? Exceed it with credit? Or were you able to save a regular percentage? Can you look at old bank statements or credit card statements to get a sense of what you used to spend on some categories? Some costs are repetitive and fixed, so those will be easy. Some of the consumer and discretionary spending is going to be all over the place, so it may take a while to figure out. Plus, there is no reason you can't work at reducing some of those old average spending levels, too.
If budgeting the details is new, be prepared for it to take a while before you have a really good sense of how much it takes to maintain a lifestyle you want. The rule of thumb I've seen bandied about is usually about 3 months of spending.
This is so helpful! I don't see anything called "buffer," although it makes sense to have one. I can calculate my fixed expenses, particularly various types of insurance, phone bills, etc. I finally coded all my transactions from 1/1/17. Whew! I found that thinking I had lots of money had translated to helping lots of people. I had about eight different organizations on monthly donations from $8 to$25. I cancelled those, and lowered me internet bill by $60.
I only use one credit card, but it gets paid off every month from my big savings. So I have had no guidance for the "flexible" expenses. I guess I need to do that now.
Thanks for that. I have used YNAB for years, but the most I have ever been able to do is add categories to transactions to see where my money went. That has taken so much of my time that I have not really used the budgeting part of YNAB, Duh, that's the whole point, right? So I have never had the experience of saying "sorry, I can't go out to eat, I spent all the funds I had in that category, and I can't take more form anywhere else. Let's go to my house and make spaghetti!" It is my dream to someday be able to say something like that. Part of the problem is having a nearly unlimited "buffer" on the account that pays off my credit card every month. I know that no matter what I put on the card, there is "enough" money to cover it. But that is NOT the same as making choices about what I am going to buy in relation to a spending goal for a category or a period of time.
Do you look at your YNAB balances instead of your bank balances? That seems to be a very important mind-shift in making this work.
This is a fantastic discussion! I agree that making decisions about how much of the savings you're willing to spend is really important. Spend time clarifying what is most important to you. That will help you define your priorities.
Once you give a dollar a job, it will sit there waiting to complete the job, unless you decide a different job is more important. They're your dollars and your priorities. It's the process of assigning the dollars that is most important. Using your budget categories to make spending decisions is the goal.
It sounds to me like you're on your way there!