You will survive the year if you use this budgeting tip.
Buffer funds are what we call them. Let’s take a look at why you need one …
No matter how much we know about budgeting and how good we are at it. There can always be things that arise and mess with our cash flow.
Can you imagine letting friends borrow money for an emergency and waiting for them to pay you back? This can really offset your budget. It can really mess up your monthly numbers.
We do not consider this an emergency, and we did not budget for it. While you’re waiting in limbo, where does the money come from?
If you weren’t receiving money, how would you survive?
Related: How to Make Money from Home in 2022
That’s where the buffer fund comes in. Buffer funds are savings accounts you can use as a safety net for unexpected expenses.
This is not the same as an emergency fund, as the latter is used to smooth out your cash flow while you wait for funds. The money can come from friends, a partner, or even a client.
Freelancers who have to wait for payments sometimes can benefit from this system.
On a long weekend, we spent about $4000 on shared holiday accommodations. We share responsibilities and costs among a group of friends.
It’s never a question of if you’ll be paid back, it’s just a matter of when. Although we love our friends very much, not everyone pays back money on time.
The situation becomes more problematic considering the month is coming to an end. I am able to stick to the budget, solve the cash flow problems, and do not have to borrow money because I have a buffer fund.
As soon as our friends repay the money, it is added back to the buffer fund to bring it back to its original amount.
In addition to paying for unexpected opportunities, we use the buffer fund for unexpected expenses.
There could be a real once-in-a-lifetime opportunity, or a great deal on something you have been wanting, but have not yet saved enough to buy.
Keeping in mind that this isn’t free cash means you won’t be able to splurge. The purpose of a budget cushion is to help you meet your obligations, cater to delays in receiving funds, and give you a bit of breathing room.
For some reason, I struggle to keep cash in my wallet. The easier access, the easier it is to spend.
Depending on your personality, you will know where to save it. Open a new bank account with low fees that are separate from the one you normally use.
Make sure you open an account specifically for this purpose, where you can also earn interest.
Determine how much you would like to put into your fund. During the past few months, you may have had some financial events that affected your cash flow.
Having a large amount in this fund isn’t necessary. Having just $2,000 in the fund may be enough.
Assess your budget and see how much you can set aside each month.
For this, we prefer automating a recurring transfer as it helps us avoid procrastination and other temptations.
You never know when you may need to dip into your buffer fund. The reason you have it is because you might need it one day. Keep adding to it until it reaches your goal.
Create a buffer fund in 2022 if you want to fix your finances and budget. You’ll be glad you did!