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?

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  • 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.

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  • 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.

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  • 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.

    jody diamond

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      • Patzer
      • Retired at age 60. Thank you, YNAB!
      • Patzer
      • 2 yrs ago
      • 1
      • Reported - view

      Green Harp (3533f4226c73) No, there isn't a default category of Buffer.  I created it, borrowing the name from a previous version of YNAB.  Sometimes the budgeting concepts are more important than the actual program implementation.

      Like 1
  • Do you mean that you made "buffer" a budget category?

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      • HappyDance
      • YNABing consistently since 2014
      • HappyDance
      • 2 yrs ago
      • Reported - view

      Green Harp (3533f4226c73) 

      Hi, Jody.

      You'll find as you read posts by various YNABers that 'buffer' can mean a couple of things. For some a buffer is an emergency fund, plain and simple. It buffers them from life's unpleasant surprises. For others, in particular those who have been using YNAB through its legacy iterations, the buffer is not about money; it's about time. A 'temporal buffer' would be the equivalent in the old days of piling up your paycheques and only depositing them on the first of next month. I use a temporal buffer in my budgeting. All the income I receive this month is used to budget next month.

      In nYNAB, the online version, buffer has been replaced by Age of Money, which would have you budget out next month's categories as soon as you can with income as you receive it. As the Age of Money indicator climbs, you are growing your safety net and buffer.

      So, in your situation, say you figure out that your monthly expenses (both fixed and discretionary) are $3,000, you could pull $6,000 from your lump fund to budget both December and January. Then, going forward have an automated transfer of $3,000 hit your account at the end of the month, and use it to budget out a full month later. I receive the bulk of my salary once a month near the end of the month, so not spending any of it until next month (but needing it for next month) was already part of my process when I found YNAB.

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      • J. Diamond/Green Harp
      • Gamelan composer, music publisher
      • Green_Harp_3533f4226c73
      • 2 yrs ago
      • Reported - view

      HappyDance  This is a great explanation. When you budget for discretionary expenses, how do you predict them? As a composer/musician/educator, I often need to be spontaneous.

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      • HappyDance
      • YNABing consistently since 2014
      • HappyDance
      • 2 yrs ago
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      J. Diamond/Green Harp 

      Now that's a good question.  Hmmm. How do I predict spontaneity?

      I think that I've generally figured out the most I'm allowing myself to spend on a particular type of expense so as to not compromise other competing goals and priorities. And sometime that 'most' is a monthly amount, but it may also be a  yearly amount that I divide by 12 for equal monthly budgeted increases. For example, Christmas gifting and charitable contributions. I know I will spend at least $X, so I set my Christmas category at $X + 10% divided by 12.  I used past spending at Christmas to determine the X.  Erk...maybe I don't do anything spontaneous any more......

      If I was living a more bohemian lifestyle and needed some extra for totally unpredictable expenses, I would probably set up a spontaneity category with the max extra I will allow myself for the month. And I would move funds to whichever category I was being spontaneous in as needed but stop when I ran out of spontaneity funds.

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      • Patzer
      • Retired at age 60. Thank you, YNAB!
      • Patzer
      • 2 yrs ago
      • 1
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      J. Diamond/Green Harp Yes, that's exactly what I did.  Bearing in mind the discussion that has occurred on this thread, perhaps a better generic category name would be something like "Deferred Income."  But I used a name that was a category title, several iterations of YNAB ago.

      On the discretionary categories:  I fund them to the amount I will allow myself to spend.  If I have $10 left in my Recreation:Fitness category, I can't sign up for a half marathon with a $60 entry fee unless I take money from somewhere else.  This creates a decision process.  Do I want to run that half marathon more than I want to have funds in Fun Money?  Do I want it more than I want to have funds for Dining Out?  Over time, many small decisions like this define my true priorities, which may be somewhat different than the budget decisions I made at the beginning of the month.

      I spent a lot of time wrestling with this in the 2008 to 2010 time frame; now I just do it automatically.  Nope, can't sign up for another race till next month.  Or, Fun Money is overfunded so I can transfer some dollars to Fitness.  Which way I decide isn't important; the process of recognizing there is a cost of spending in terms of not being able to spend on something else is vital.

      Like 1
  • 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.

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      • jenmas
      • jenmas
      • 2 yrs ago
      • Reported - view

      J. Diamond/Green Harp I only look at my bank balances on payday. My paycheck is deposited into Account 1 and I move most of it to Accounts 2 and 3. I know that Account 1 needs should have approximately $X in it, Account 2 needs $Y and anything left over goes to Account 3. Otherwise, my bank balance has zero impact on my spending.

      Any spending decision I make - Dr. Pepper from the hot dog stand to new HVAC is based solely on what is in the relevant category. Sure I can say "Sue's in town for one night only, I really want to grab dinner but the category is low so I'll take $20 out of clothing." That's a normal re-prioritization of funds. But I make the conscious decision that my friend I haven't seen in 2 years is more important than a new T shirt.  

      The whole point of an envelope-type system like YNAB is to spend based on your category balances and not your account balances.

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  • 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!

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