Buffering: Budgeting for the Unexpected

If everything could be foreseen, we could budget for it and handle things pretty smoothly  But such is not the case.  So much can happen that render our budget projections inaccurate:  higher than expected utility bills, a car repair, a medical emergency, a job change--you name it.

But there are ways to budget for the unexpected.  I recoommend buffering your Pagemonth budget spreadsheet, as I do mine.  Basically the concept is simple:  I build in about $1000 a month more than I think I'll need to spend..  And if something comes up, that buffer will often handle it.

I use category 111 in Regular Expenses, my credit card payment, to absorb my unforeseen costs, before they're even known.  If I plan to charge nothing whatsoever, item 111 still gets $1000.  If I''m pretty sure I'll have to charge $3000 in a given month, 111 gets $4000 that month.  You get the idea.  I build in a $1000 buffer each month, and raise (or lower) it as things become known.

As an example, my wife's car was having problems our regular gas station mechanic couldn't fix, and I had to take it to the dealer, knowing it could cost a lot more.  And it did.  To fix the problems right I had to lay out $2700.  Fortunately I had good credit that could absorb that within my credit limit, so I paid by credit card.

But as soon as the estimates were made, I set up my next month's budget category 111 payment for $3000, and it could go to closer to $4000 or more by the end of this month.  I buffered in the repair and gave myself 30 days before any interest would begin to accrue.  In other words, I budgeted to pay off the entire bill at once, and I will, and will still have my $1000 buffer in place to hedge against other charges we might make in the next two weeks, since it's only the middle of March.

It doesn't matter what category you choose to provide your buffer.  It could be cash, category 110.  But I prefer the charge card since I keep my balance paid off each month no matter how inconvenient it is at the time, so I never have to pay interest on it by paying in installments.

The idea of buffering is to see how much you can stretch your theoretical expenses and still grow your balance from month to month.  I used a big repair bill in the above example, but you can buffer in other ways as well.  Unless you know what your utility bills will be, budget a bit more for them than you believe they will be.  Unless you're certain your net income after taxes will be a certain amount, budget a bit less than you expect to be paid.

In other words, underestimate income and overestimate expenses a bit throughout your budget projections.  Then, as actual income and expenses replace budgeted income and expenses, you should find your bottom line balances increasing through the year, because you built in buffers.
Some months may project lower balances than you find acceptable, and you can improve your situation by revising and cutting back on some things or supplementing on the income side, even if it means you'll need a higher paying job or second, part-time income for a time.

Use your budget to plan your goals and carry you through obstacles that could prevent your reaching them.  Don't be fooled by your initial setup end-of-year estimated balance, which can be deceptively high before experience brings it down to reality.  Try for goals that are realistic, and be prepared to pay out those expenses by buffering for them.