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Keeping a financial buffer in your bank account is one of the smartest moves you should make with your bank account. There are numerous ways to budget and save money but as we all know way too well, nothing is perfect.

Thankfully, with a checking account buffer, you can keep yourself safe from overdrafts, fees, even if you forget about an auto withdrawal or payment subscription.

Saving yourself money? That’s a no-brainer decision to make, so keep reading and I’ll explain why your financial buffer should be included in your zero based budget (or whatever budgeting template you’re following!)

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What is a Financial Buffer?

This is one of those things that many budgets don’t tell you. A cash buffer is an amount of money sitting inside of your bank account at all times, going untouched.

When you do a zero based budget, or any budget style for that matter, you should always leave a certain amount of money inside of your checking account in the event that money is withdrawn without you noticing.

Many people think that the term “zero based budgeting” means to bring your account down to zero, but this is simply not the case. Even the financial expert Dave Ramsey says bringing your bank account down to zero is not recommended.

Why You Shouldn’t Bring Your Account to Zero

Let’s say that you go out to dinner, or order pizza and you give a tip. You paid with your debit card so the charge is pending for a few days. Usually, in my own experience, the pending amount doesn’t include the tip. But the tip comes out after the payment clears.

This means, if you look at your account after paying, your bank statement isn’t accurate because it’s missing that tip money. You may fall into the idea that the amount you see available is actually accurate, when it is in fact, not.

It’s sort of similar to balancing a checkbook, but with your bank account numbers. Unfortunately, not everyone has a checkbook or knows how to do this simple math.

Another prime example is if you shop using a store debit card like a Target Red Card. The charges may take a few days to come out of your checking account. If you spend some money in your account and then have less than the Target card tries to withdraw, you could be in debt.

With a cash buffer in your checking account, you can prevent all these issues and more.

How Much Should I Keep In My Account?

For many people, I highly recommend keeping the number of $200 or less. The goal of a buffer is to cover these small incidentals, unbudgetables, and accidental overspends. Not to do anything extreme or extravagant.

Personally, we keep an account buffer of $100. It has served us well over the years and we’ve not really had a need to hold more. There were a few times when we didn’t have one (because money was too tight) and we were hit with overdraft fees stacked on top of overdraft fees. That was a financial hole that was hard to climb out of.

When we first started budgeting, many years ago, we found $200 in subscription fees that my husband had forgotten about every month. When we tried budgeting, we brought our accounts down to zero after bills.

As you can imagine, it didn’t work out well and we were in the hole for a while as we searched for all of the leaks in our budget.

This is also the leading example and reason why I tell everyone that it takes a few months to hammer out a great and make a budget.

How Do I Account For a Cash Buffer?

Now if you’re wondering how to squeeze a buffer into your budget, I’ll fill you in on the easiest way. Simply add it in as a line item.

When you make your budget you include things like:

  • Rent/Mortgage
  • Loans
  • Credit Cards
  • Utilities
  • Student Loans
  • Food

When there’s money leftover ou can use it to pay off debt, as fun money, or put it into savings. But now, with this little buffer, you’ll simply add a line to the budget you have, right below all of the important bills, and just before the fun things that you could technically live without.

Now, leave that buffer in your account and it’s like you’re paying yourself to be smart and think of the unseen future events.

Keep in mind this is completely different from emergency funds and sinking funds. This buffer is just there to make sure that you don’t need to touch those things or steal money from one spot only to put it somewhere else in your budget.

Pretty smart, right? Large corporations do a version of this as well. It helps to keep individuals and companies from getting their accounts too close to zero and thereby helps to reduce the risk of going in debt.

What to Do if You Don’t Touch the Cash?

Okay, so let’s say you made a budget and set the money in your account hoping it wouldn’t be touched, and that you were successful. The full $100 you set in the checking account was there on your following payday.

This is actually great news, not only because you didn’t need it but also because you resisted the temptation to spend it.

So what do you do with the budgeted buffer you’re supposed to have this paycheck. You didn’t even use the last one! Well, that’s completely up to you but I recommend shoving it in a savings account if you don’t have an actual need to spend it.

It’s your cash and your budget, so spend it and use it as you see fit. Just remember that this small cushion can help to save you big in the long-run.

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