Here’s How To Set Up a ‘Bills Buffer’ So Rent Never Wipes You Out
Despite knowing that rent fees are coming at the beginning of every month, many folks still find it difficult to time their deposits and withdrawals so that bigger bills (like rent) don’t wipe out their bank accounts. However, it may not simply be an issue of timing; building a “bills buffer” can also protect your bank balance from depletion.
What Is a 'Bills Buffer'?
A bills buffer is any form of financial cushioning that bolsters your account balance, keeping it high enough to absorb the shock of a high auto-withdrawal like monthly rent that can sometimes catch you by surprise and leave you penniless if you’re currently in a paycheck-to-paycheck cycle.
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How To Create Your Own Bills Buffer
“Start by creating a budget,” said Melanie Musson, insurance and finance expert at Clearsurance. “If you don’t budget and you just spend until your account is drained, you’ll never be able to build a buffer."
As for how much extra, Musson suggested gradually increasing your checking account balance by increments of $100 per month until you can maintain a minimum standing balance of $1,000.
“You don’t want to keep too much money in your checking account because it doesn’t earn interest, but you should keep enough to cover your monthly expenses with a $1,000 buffer,” said Musson.
If $1,000 is simply too high a number with your current income, Senior Trends Analyst at CouponFollow, Clay Cary, that it’s possible to aim a little lower and still save.
“Creating a buffer fund of even $300 or $500 is sufficient to avoid the situation,” he said. “The best practice is treating your buffer fund as an expense, and automatically transferring some cash into your savings account weekly.”
How To Budget for Your Buffer
Don’t forget to make a budget — it’s one of the most reliable ways to create that $100-per-month buffer. It can also help you set aside money for large, irregular expenses that are easy to overlook.
Christina Lynn, wealth strategist and director at Mariner Wealth Advisors, suggested a reliable plan for budgeting once your buffer has been created. “I’m a fan of the 50/30/20 rule,” she said. “It suggests allocating 50% of your take-home pay for needs (such as housing, food, transportation), 30% for wants (such as eating out, travel, fun) and 20% for savings (such as 401(k), emergency fund) and debt repayment.”
Lynn added that automation can work for your savings, so you don’t have to think about it. “Automate your savings by setting up direct deposits into separate accounts like your 401(k) or savings. This way, you avoid the temptation of spending what should be saved.”
The Bottom Line
Despite it being a monthly occurrence, big bills like rent still manage to sometimes take even the most responsible by surprise. The safest way to protect against it is simply to institute smart budgeting, which allows you to build both a “bill buffer” and to always have enough cash allotted for those big monthly auto-withdrawals.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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