The secret budgeting tip that will help you make it through the year

It’s called a buffer account. Here’s why you need one …

By Brendan Dale

I used to think I was good at budgeting and tracking my money. I did all the right things, including paying myself first and having an emergency fund.

Funny how one Sam Smith concert in 2019 taught me a valuable lesson. Buying six tickets at R850 each and then waiting for your friends to pay you back can really mess up your cash flow!

It’s not an emergency, and it’s not budgeted. So where does that money come from while you’re waiting in limbo?

How do you survive through the month without that money in your account?

That’s when I learnt about a buffer fund.

A buffer fund is simply a savings account you can use as a buffer for unexpected expenses.

It’s different to an emergency fund, as this is usually used to smooth your cash flow while you’re waiting for money. This could be money from friends, your partner, or even a client.

It’s a great idea for freelancers who sometimes need to wait 30 days or more for payments.

I’ve needed to fork out around R4 000 for shared holiday accommodation over a long weekend. As a group of friends, we take on different responsibilities and share the costs.

There’s never any doubt about being paid back, it’s more a question of when. As much as we love our friends, not everyone is good at paying money back on time.

Being R4 000 short can make it tricky as month-end approaches. Having a buffer fund solves the cash flow issues, allows me to stick to the budget, and prevents me from having to borrow money.

Once my friends start paying the money back, it goes back to the buffer fund to top it up to its original balance.

Another thing I use my buffer fund for is to pay for unexpected opportunities that arise.

Perhaps a true once-in-a-lifetime opportunity, or a great deal on something I’ve been looking to buy, but which I haven’t quite saved enough for yet.

It’s important to remember that the fund isn’t free cash to splurge. It’s there to help you meet your obligations, cater for delays in receiving funds, and allow you some breathing room in your budget.

I’m no good at keeping cash in my wallet. If it’s too easy to access, it’s too easy to spend.

Knowing yourself can guide you as to where to save this fund. It’s a good idea to open a new, low-fee bank account that is separate from your usual bank.

Open an account dedicated to this purpose, where you can also earn a little interest.

Decide on an ideal amount you would like in your fund. Think about financial events that have messed up your cash flow over the last few months.

You don’t need a huge amount in this fund. Even just R2 000 may be a good start.

Look at your budget and see what you can set aside each month.

I like to use a recurring transfer to automate this, as it helps avoid procrastination and other temptations that may arise.

Don’t be afraid to use your buffer fund when needed. That’s why you have it. Keep topping it up so it hovers around your goal amount.

If there’s one thing you can do to fix your finances in 2022, start your buffer fund. You’ll thank me later!

  • This article first appeared on the Change Exchange, an online platform by BrightRock, provider of the first-ever life insurance that changes as your life changes. The opinions expressed in this piece are the writer’s own and don’t necessarily reflect the views of BrightRock.

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