The secret budget tip that will get you through the year


This is called a buffer account. Here’s why you need it…

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.

It’s funny how a Sam Smith concert in 2019 taught me a valuable lesson. Buying six tickets at R850 each and waiting for your friends to refund you can really waste your cash!

It’s not an emergency and it’s not budgeted. So where does this money come from while you wait in limbo?

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

That’s when I heard about a buffer fund.

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

It’s different from an emergency fund because it’s typically used to smooth your cash flow while you’re waiting for cash. It could be money from friends, your partner or even a client.

This is a great idea for freelancers who sometimes have to wait 30 days or more for payments.

I had to shell out around R4000 for shared holiday accommodation over a long weekend. As a group of friends, we take on different responsibilities and share costs.

There’s never any doubt about getting your money back, it’s more a question of when. Even though we love our friends, not everyone is good at repaying money on time.

Being short of R4,000 can make it tricky as the end of the month approaches. Having a buffer fund solves cash flow issues, keeps me on budget, and saves me from having to borrow money.

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

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

Maybe a real once-in-a-lifetime opportunity, or a great deal on something I was looking to buy, but haven’t saved enough for yet.

It is important to remember that the fund is not money available to splurge. It’s there to help you meet your obligations, bridge any delays in receiving funds, and give you some breathing room in your budget.

I’m not good at keeping money in my wallet. If it’s too easy to get, 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 separate from your regular bank.

Open a dedicated account for this purpose, where you can also earn some interest.

Decide on the ideal amount you want in your fund. Think about the financial events that have ruined your cash flow over the past few months.

You don’t need a huge amount in this fund. Even just R2,000 can 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 reloading it so it spins around your goal amount.

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

  • This article first appeared on Change exchangean online platform for BrightRock, provider of the very first life insurance that evolves with the rhythm of your life. The opinions expressed in this article are those of the author and do not necessarily reflect the views of BrightRock.

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