How to Set Up an Account Buffer

Jul 9, 2018 11:30:00 AM

Becoming fiscally independent and responsible is a challenging and rewarding project. Steps on this journey include successfully setting up direct deposit with your employer, creating a smart savings plan, and budgeting for debt repayment. One very useful, and often forgotten, next step is to make and maintain an account buffer.

With many to all monthly payments being automated, it can be easy to lose track of what’s going on in your account. The double edged sword of automatic payments is that you can forget to still consistently attention to money movement. Payments can sneak up on you, and can lead to unexpectedly overdrawing an account freshly cleaned out due to monthly charges. Creating an account buffer is a great way to ensure you are never caught off guard financially.

What is an account buffer?

An account buffer is the equivalent of a few weeks of your income left in your account for all kinds of payment safeguards, protecting against overdrafts and related fees, and bounced and declined transactions. The amount will then vary, income to income, though the general concept of budgeting in a cash reserve for the account linked to your payments is the same.

While an account buffer is initially not meant for larger scale financial emergencies, beginning the process of setting one up will eventually lead to enough funds for when your car breaks down, or even smaller medical emergencies.

How do I set up an account buffer?

Setting up an account buffer is a simple and reassuring process. There are a number of smart options to choose from when setting up an account buffer.

The first sure fire way to set up a buffer is to set aside a small percentage of your monthly salary. Some of your income should already be going into your savings, so it’s a logical next step to have the account buffer as part of your monthly budget. The amount could easily be equivalent to a few fancy cups of coffee per month, which is not so difficult a sacrifice for planning for better financial security.

Another option is redirecting any extra cash flow into your account buffer. Your tax return is an especially good source of income for this. Instead of using all the extra income on a big ticket purchase, put it aside as your buffer - again, it’s always smart to watch what you purchase, on both the daily coffee scale and European getaway scale.

Finally, there is always the option to pick up extra work, time willing. Freelance work has never been so accessible, and even a few jobs here and there in such fields as writing, proofreading, and teaching online can afford enough income to create an account buffer. Other popular ways to fit in part time work include driving or delivering food for companies like Uber and Lyft, where you can set your own schedules and expectations.

How Much Do I Need?

Of course, it’s important to note that an account buffer doesn’t need to be very sizable to be effective. Smart budgeting plans can save you a hassle in the long run, though it’s not necessary to, say, double your working hours solely for an account buffer. A few hundred dollars can go a long way, and even an extra $20-$30 in your account can ensure that splurging on a fancy lunch or coffee doesn’t see you accidentally overdrawing your account and triggering fees.

According to a Forbes report from last year, 63% of Americans don’t have the necessary savings for emergencies costing $500 or above. It may sound like quite the sum, but saving and spending responsibly to build an account buffer can quickly show you it’s not so unimaginable to actually be in the coveted 27% of this statistic. So as you can see, having an account buffer can save you a huge amount of money in the long run, only costing a little at a time.

Tags: Budgeting, Banking Tips, Personal Finance, Financial Education