Create a buffer in your budget

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It’s amazing how much peace of mind you can get by simply having a bit of breathing space in your budget. This is different to an Emergency Fund or special savings that you have. This is simply having a little extra left for “just in case”.

It may sound crazy or even impossible to save money, have an emergency fund and yet still have some extra money that’s not allocated to anything specific. You certainly can’t just fix your finances overnight but there are some steps to take to improve things.

The first important thing to note is that it’s almost impossible to create an extra buffer in your budget while you’re juggling creditors (you’re using debt to pay other debt). So if that’s your current situation then you should probably start by looking at some of my posts on getting rid of debt.

If your debt is manageable though and you’re not in a situation of borrowing money from this person to pay that one and paying your overdraft only to transfer it out the next day, then you should read on.

Paying it forward

The problem with debt is that you end up using your current months income to pay for things bought in the past. And once you’ve paid your debt you often don’t have much (if anything) left to live off for the current month. This is all back to front really.

Imagine not having any debt and having money saved for next months expenses. So instead of using your current salary to pay past debts imagine using it to pay towards next months groceries. What that mans is that when next month comes, you already have some money allocated to groceries and you’ll inevitably have some spare cash at the end of that month.

This spare cash can then again be “paid forward” to the following months budget or it can go towards something special.

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I actually have a nice post on why cash for matters.

Where to start

The simplest way to do this is to use an old-fashioned piggy bank and literally save some coins and possibly some notes towards next month (or look at creating a savings account but make sure it’s not going to cost you money!) You shouldn’t over extend yourself though and you must pay all the debt repayments that are due and you must manage all your commitments. No use in giving yourself a false sense of achievement.

It’s also important not to be creating new debt. It doesn’t make sense to “save” R250 and yet you spend an extra R500 on your credit card. Think about it like this, your R250 that you save will likely earn 5% interest at the bank which equates to R1.04 for the month (and zero interest if it’s saved as cash). Your R500 debt is probably charged at 24% interest though and will cost an extra R10 for the month. These figures seem small because I’m using small amounts as examples but it costs you money to have debt so it’s pointless saving money when you’re also racking up debt.

So maybe you should start by simply creating less debt this month. This means that your repayment will be slightly less next month and you’ll have a little extra. That in turn means you can buy more stuff with cash and create less (or no) debt the next month and that means smaller repayments and so the cycle goes.

To sum up all the ramblings above:-

  • Don’t make any new debt. If you really cannot survive the month, make as little debt as possible!
  • Use cash as far as possible
  • Cut down wherever you can

These may sound drastic but if you just do it for a month or two you’ll notice a huge difference!

How it works going forward

The idea is to get to a point where you literally have spare cash lying around that is unallocated. This could create a temptation for you to spend it but I think that if you’ve put in the hard work needed to build up this buffer then will most probably have mastered the discipline needed to manage it wisely.

The purpose of this money is simply to make life less stressful. Instead of living pay check to pay check and barely surviving the month, you now have breathing room that allows you to overspend here or there. It also allows you to make spur of the moment decisions.

So if you just have R200 extra next month it means that you don’t have to stress if you overspend a little somewhere. You obviously still want to stick to your budget but this just gives you room for “real life” when things don’t work out as planned. Imagine then if you could build your buffer to say R400 or R500 the next month, and a little more after that.

You really need to live within your means and by doing that you’ll find great freedom and peace when it comes to your finances.

Nothing each-shattering, just plain old common sense.

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