What's a buffer?
I'm not exactly getting started since I've been using YNAB for about a year now. Something I've seen around the forum is people talking about having a buffer, and I'm not sure what it means.
It seems to be about getting at least a month ahead with regular outgoings. If that's right, does that mean budgeting this month's income into next month? And what's the reason for doing that rather than having a category "Buffer" and keeping the money there?
I still struggle with some YNAB concepts, and I get confused between an emergency fund category, some of the true expenses categories and the mysterious buffer.
Could anyone who uses a buffer explain what it means to them and how it's different from other rainy day/future proofing categories?
For me, a "buffer" describes the delay between when I earn income and when (in which month) I budget it. I.e. it's the thing that ensures I'm not living (or budgeting) paycheck-to-paycheck.
Emergency funds and generously-padded categories provided financial security: If an unexpected expense occurs, I'll have some ability to absorb it without making uncomfortable sacrifices to my other spending priorities.
In contrast, a buffer mostly provides an administrative convenience. It enables me to fully allocate my budget on the 1st of the month; I don't need to rely on any mid-month paychecks to cover my expenses. It's convenient to budget an entire month of aggregated income all-at-once vs doing that piecemeal as it arrives, especially if you have frequent/small paychecks or multiple income streams (e.g. joint family budget). I also find it helps me "see the big picture" and make smarter decisions when I budget in monthly increments vs piecemeal.
Mechanically, operating a buffer in YNAB can be achieved in several different ways. My preference is a category-based solution: As income arrives throughout the month I budget it into a "Income For Next Month" category, and at the beginning of the next month I empty that category out and distribute it as needed.
I have found that the temporal buffer (all of this month's funds were earned last month) frees me from having to time my spending and bill paying to my paycheque That is so incredibly life-altering, that if you haven't experienced it, it's hard to understand just how freeing it is.
What I love about being buffered: the bill comes in, I pay it. The grocery store has a huge sale on pantry staples this month, I buy some. I need tires, shoes, new book? I buy those too. There is no cash-flow crunch or checking the calendar to see if I can hit the shoe store during the sale which is occurring before payday because a utility bill might be due.
How much I budget to food, utilities, clothing, etc. wouldn't change if I had no buffer, but the timing on when I can do my spending would be dependent on receipt of income and the timing of that income to due dates on some bills. That was the element that was so frustrating and annoying to me early on in budgeting. I actually made the move to being a full month ahead of my spending before I found YNAB. I think I may have been predisposed to liking YNAB because of the buffer principle aligning with my own thinking.
I also believe that being able to budget the entire month at a shot helps me keep my spending tight. When the money was rolling in every two weeks, and the cash-flow was complicated by timing, there was a lot of leakage on what I was spending on some discretionary categories. Plus, there was the difficulty in taking advantage of reduced prices at sales that didn't align with my ability to spend.
So, I seem to be buffered already because I'm paid once a month, right at the end, and I use that for the following month's budget. I can't imagine having to drip feed the budget and therefore the spending through the month . I have enough trouble getting my head round it all as it is.
But I am now starting to get a bit of income in addition to my main job, and I like the idea of setting that aside in a "For next month" category. I think that would help me use it more intentionally, rather than tending to think of it as a bit of free money that just landed!
That's helpful, I appreciate the replies.
I've kept up a one month buffer for over year now, and I prefer to assign my latest paycheck to the following month because it helps me to keep track of what needs to be specifically budgeted for.
When I budget ahead, my goal is to not bring the money I assigned for the following month back into the current month because I didn't budget for something in the current month. I know I'm still living paycheck to paycheck, but it's good to hit the first of each mouth with money already assigned to pay for things. And because I'm also assigning money to true expenses, I have more money in my checking throughout the year.
As for an emergency fund, it's just money that is not assigned to a specific budget. In my journal I made a list of things that could be deemed a true emergency, and that's when I started to realize I didn't have enough money in my emergency fund, for say a loss in income, an emergency trip, or a major car repair.
Having a buffer and covering true expenses are the most goals of budgeting.
When I started here, they offered me the option of a mid-month advance against my salary. I was able to decline that option because I was already buffered, and could function normally until paid at the end of the month. It caused the HR pay and benefits employee to look at me like I was a strange creature. 🙂
I do the payroll for the company where I work, and I can't believe how many people have to get an advance on their salary if they're hit with a sudden expense, even a parking fine. It doesn't seem to matter how high their salary is either. If we have someone coming from being weekly paid to monthly paid they usually get an advance on salary too, because they've been living from one week to the next.
I tend to worry that I'm not doing very well financially, but in comparison this does make me see that I'm not doing that badly. (Thanks to YNAB and to advice from the community too.)
I know I'm still living paycheck to paycheck, but it's good to hit the first of each mouth with money already assigned to pay for things. And because I'm also assigning money to true expenses, I have more money in my checking throughout the year.
This is exactly where I am, although I'm still a bit wobbly with true expenses. I haven't built them up enough yet so I occasionally have to raid them all if something happens. At least I'm just WAMing in the true expenses categories, not using my Emergency Fund or credit card.
I'm really serious about the Emergency Fund because I have had big emergencies at different times in the past like unexpected job loss and the roof falling in (literally). Unfortunately, I know painfully well how much it costs.
But yes, although I think I'm still living paycheck to paycheck, it's that the paycheck is assigned to spending for the following month, rather than life is on hold (or on overdraft) until the money arrives.
The main benefit of a buffer is administrative convenience, as many in this discussion will attest.
Since we've bumped this, I will say that I regard clarity as the primary benefit. It is obvious (sometimes painfully so) how much money you have for EVERYTHING. There is no wondering about whether you should budget for X out of this check or wait for next or maybe even split. All of these choices have cascade effects on other categories (due to the finite amount).
There is no doubt how much money is "left over" after necessities to apply to debt, discretionary, or whatever your next level priorities are.
Given consistent income, it's a chance for a mini-reset every month. (And if you have variable income, you should normalize it so you have consistent effective income.) No kicking the can down the road, that month gets what it gets, or has to rob it from elsewhere.
Does it also count as "buffering" if you just put extra money into the categories?
I am paid at the end of the month. So technically I am "buffered"right from the get-go. But . . 1 month in . . I find the month rollover pretty confusing. I got so scared I was overlooking something , and would end up overdrawn or end up in a pickle of some kind. That hasn't happened but I still feel jumpy with the month rollover, and probably will keep feeling that way till I get more practice and am less on the edge . .
I was thinking I could make it less scary-confusing for myself (and more just, confusing confusing, lol) . . What if, with some extra money that is coming in (my tax refund), i budget money to some categories that would then roll over into the next month (i.e. overfunding my key categories). I am imagining, for instance, having my mortgage funded at 1.5 of the actual payment cost, so that when the month rolls over there are funds rolling over as well. Then when my new paycheck comes in, I would just budget it as normal. In my mind this feels very comforting and stress-relieving.
Is that the same as 'buffering" ? It's like having a 'buffer' category, but different in just allocating out to the different categories directly? And then, when my next month paycheck comes in, I do my budget at the beginning of the month but with categories that already have some juice in them.
Do you see any drawbacks to this idea I had?
I feel like I would be more likely to pull money from a "buffer" category to buy some new shoes than I would from an overfunded mortgage category.
(Right now, on the basis of these conversations, i did start a buffer category, but I only funded it with the money which is the minimum balance for two of my bank accounts - so I know not to spend that money.)
This thread is really interesting. I'm only on month 2, so right now I look forward to funding categories on a weekly basis (I'm paid weekly, my husband is bi-weekly). Maybe eventually I'll tire of it and want to just budget once per month. Then I could MAYBE understand the want for a "Income for Next Month" category. But right now, budgeting ahead is working for us.
My husband and I have decided that once the current month is funded, we'll move on to next month. Monthly Bills are priority when budgeting ahead, then Everyday Expenses, True Expenses and Savings. Our thought is that after we are fully budgeted a full month ahead, the excess money will go into our "House Down Payment" category. If we overspend in the current month, we can always reduce a bill we've funded in the next month. We have time to fund it when the next paycheck comes in.
Because January had 5 weeks (and there was some unexpected income), I was shocked by how much we were able to cover in February before the month began. I've been a little disappointed in February that we aren't as far ahead, but I'm trusting the system and know we are on the right track.
The great thing about YNAB that I'm learning from reading the forums is how everyone uses it slightly differently. I love getting other's perspective.
That's why I wish personal finance and budgeting were taught in at least high school so more ppl could do better with their money, and that there was a better distribution of wealth so more ppl could pay their bills and not have to work additional hours to do so.
Well I have a feeling this isn't taught in high school for a reason. I have a STEM PhD but I had to teach myself personal finance and investing.
If we overspend in the current month, we can always reduce a bill we've funded in the next month
You might consider an emergency fund instead. Anyone who is buffered (i.e., can push their money into next month) will try REALLY hard not to steal from next month. (Doing so loses the benefits of being buffered.) Instead, they find the money in the current month if at all possible.
they find the money in the current month if at all possible
That's a good point. I'm giving us some grace as we are still getting all the categories right. For example, we each have fun money, but what do we do when it is a joint social outing? So in the middle of February we set up a "Social" category.
I definitely hear what you're saying though. I'll try to be more mindful of that. We are still working on the shift in mindset that is required when transitioning from money tracking to true budgeting. Thanks!