How Much Buffer Do You Need In Your Budget?

charlie_imageLately, I’ve been on a big kick of reading tons of reddit posts in the personal finance sections, and getting lost in peoples inspiring stories (like last week’s debt freedom story) and trials and tribulations. As I read through many of the trials people have going through, I realize how many real world problems there are out there. A lot of people are hurting, both emotionally and financially, and people are pouring out their hearts about their debt, they’ve been laid off, or have no buffer in their life.




buffer in your budget

This past week I was particularly touched by two posts that people were sharing:

  1. A young man shares how he lost his job, his wife is 24 weeks pregnant, and their rental house is being foreclosed on. [read ficklephilosopher‘s¬†cry of desperation]
  2. A recent podiatry graduate with $240k of debt found out he had a medical condition that prevents them working in their field and asking questions of “what to do next.” [read nacho_monkey_m8 story and request for help]

As I read these posts, and countless others, I realize how little buffer or wiggle room so many of us have in our lives. We budget out expenses to income ratio, so that their can be no bump in the road. According to Murphy’s law, there will always be bumps in the road! :)

This morning, during my quiet time with the Lord, I was going through Oswald Chambers’s devotional “My Utmost for His Highest,” and came across a quote about hearing the Lord. It was:

The child attitude is always, “Speak, Lord, for Thy servant heareth.” If I have not cultivated this devotion of hearing, I can only hear God’s voice at certain times; at other times I am taken up with things – things which I say I must do, and I become deaf to Him, I am not living the life of a child. Have I heard God’s voice today?

If you have no buffer in your budget, then isn’t it no wonder that you wouldn’t wouldn’t hear from an almighty God? Would we not think that, “I must do XYZ, because I need to make more money for my family to keep up with my expense demands?” How can we hear Him if we are constantly worried about money, buried in debt, or limping along in a low paying job? What kind of buffer have you created in your finances, so that you can hear Him? Why aren’t Christians today creating any buffer in their budget compared to everyday Americans?

If you are someone that is facing some tough decisions, then here are a few things to consider…

  1. Do I have a $1000 – as Dave Ramsey talks about, do you have your initial $1000 for emergencies saved up? Is it easily accessible for real emergencies? Or do you have wiggle room to even be able to save
  2. Do I have 3-6 months of living expenses saved up – this is by far one of the most important buffer requirements you should have in life. If you don’t have at least this much cash stashed away for a rainy day, then it’s like you are driving around without any car insurance. Why do you buy car insurance for a depreciating asset, but don’t have any emergency fund (or living insurance) to weather some tough times. This cash can be your greatest asset buffer to take the worry out of life!
  3. Can my family sustain if one spouse, in a dual income family, loses their jobs – I loved Aaron’s article from last week, where he went into the second part of living off one income! To often times we let our expenses, primarily a large home purchase, that shoehorn us into have both parents working. It creates the feeling that, “we can never get out from under this.” Just like in my Oswald Chambers quote, that these are things we MUST DO! Why must we do them? Is it because of decisions we made previously that make our family be a dual income family?
  4. Do I have 10% buffer in my current budget – if your pay was reduced by 10% or you had to take on some debt that took 10% of your take home pay, then could you weather that storm?
  5. Am I on an interest only mortgage – in 2007 & 2008 a lot of people were buying homes on interest only mortgages. Their assumption was that home values would continue to rise no matter what. Often times they bought homes on interest only, because they could only afford to pay only the interest portion of their mortgages. When interest rates started to rise, and mortgage rates reset, then a lot of people were caught upside down. These ARM loans, then adjusted and forced people to pay a much higher interest payment too. As 2009-2011 rolled around, then a lot of people found themselves in under water loans, and loans that were requiring principal and interest payments. Are you choosing interest only, because that is all you can afford right now? Do you have any buffer in your budget to pay principal too?
  6. What happens if I die? Will my spouse and kids be fine? – have you bought the proper amount of insurance to be able to let your spouse live comfortably when you die or do you not have enough buffer in your budget even to pay for insurance? In a lot of instances, where you are the sole bread winner, you can’t afford to go without buying insurance. Run through different scenarios with your spouse, and determine how long you’d need to survive on no income, and about what your expenses are per year. 10x the primary income source is a good starting point.

So these are just a few ideas to consider before making a major purchase (i.e. college or house), and asking yourself, “Do I have enough buffer in my budget to take this on?”

What are ways that you create buffer in your budget? What are items that eat away at that buffer in your budget?

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3 comments

  1. Dillon says:

    All great points, Charlie! There will always be ups & downs in our lives, so you might as well plan for them. Many people aim for a safety net, but it’s often not enough. If something happened, we could trim it down to essentials only and last approximately 6 months.

    Far too many people have a safety net, but not a monthly buffer. They save a few months of expenses, but then stop saving. Their monthly expenses match their monthly income. Often times it’s with fixed continuing payments as well, such as car payments or mortgages without an easy way to increase the monthly buffer. Alllllllways need some breathing room in your monthly expenses.

    Thanks for taking a look at not just one safety factor, but comprising a more holistic look.

  2. Charlie says:

    Dillion – too often we adjust our lifestyle to fit out budget. Up or down. We need settle on a budget and not let marketing or the wants of this earth blow us off course. Thanks for reading and the encouragement.

  3. Phil Danley says:

    Question #3 demonstrates why a debt coach can be so helpful. Is your identity shaped by what you think others expect of you, or can you identify yourself as a saver in a one-income family? If you need the bigger house to believe you are important to God, then you’ll decide to become a two-income household. Jesus considers each of us to be of infinite value! God created each of us in His image! Let’s make decisions based upon those identities!

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