My wife and I started YNAB 2 months ago and at that time we had about $900 in credit card debt from summer vacations we couldn’t afford to take and an “emergency fund” savings account with a little less than one month’s income in it.
We started working the program and it was super frustrating that we had to budget 5x a month when our paychecks arrived.
So, at the end of September, I paid myself a little extra out of my business and topped up our “Emergency Fund” to be one month of income. I then relabeled the “Emergency Fund” as “30-Day Buffer.”
That means for October, we’ll simply use the 30-Day Buffer to budget completely once at the beginning of the month. Then, we’ll collect our paychecks in a category called “Next Month’s Budget.”
It’s crazy how looking at the same financial picture from a different angle totally changes how it feels.
On the one hand, I’m pumped that we’re buffered and REALLY know whether we can afford things (bye bye personal trainer and HBO.)
On the other hand, one month of buffer is still pretty scary to me since my self-employee income can be erratic. Sure it’s better than being in debt but 30-days is a short amount of time in the scheme of things. Being buffered has made me realize what I need to feel secure. I’m sure that’s different for everyone. It’s at least 90-days is buffer AND an Emergency Fund. I’m sure that sounds crazy to some and like not enough for others.
Anyway, this little switch has been really eye opening and I highly encourage any of you with Emergency Funds to try it out.
Next baby step, building this buffer out to 60-days!
That is super awesome, congratulations on that win! I was in that place once, busting my butt to see some kind of emergency fund that didn't look pathetic, but I was still starting every month riddled with yellow everywhere which was frustrating. Smart people advised me to do exactly what you did and prioritize that month ahead buffer and method.
But now you shouldn't worry about getting 2 months ahead. It's not the same as an "emergency" or really, an Income Replacement fund. Those should be separate. The buffer is for your monthly spending at your current job. If you lost your job, you would need a category that would replace that income. Start saving in there, and also saving up for as many true expenses as possible.
Trying to budget ahead more than a month, while it might feel satisfying for a moment, will just cause more headaches down the line as you end up having to make constant adjustments for one reason or another. You are totally on the right track though, keep it up!!
Oh, and I should add, with a non-traditional pay structure, it's even MORE important to have that Income Replacement category! There is advice floating around too that advises you to set up a "deferred income" category too, where in the months where you may earn more than you need, you can smooth things out by doing a negative category withdrawal in the months where income may come up short. Half my monthly "income" is deferred where I remove a fixed portion from a few different categories a month, so I'm a big proponent of this method.
Chris Jacobie Chris, we are embarking upon budgeting for our first fully-buffered month at the same time! And, I too used a big chunk of my emergency fund category to fund the buffer. It feels a little bit scary to me, almost as though I am "spending" my emergency fund monies, but I keep reminding myself that it's just a change on the books and how I classify funds. Based on some recent advice I've gotten from forumers, I am hoping that budgeting on the 1st of each month - as opposed to budgeting multiple times per month whenever income comes in - will give me greater clarity. We'll see as of the strike of midnight tonight...