Buffer Zones: Quit living paycheck to paycheck

One fear common in many homes is that of not being able to pay the bills. This is remedies by setting aside some of your money for a rainy day. Some people call this an emergency or “rainy day” fund–I call it creating buffer zones because I think that you should put this money to use if an opportunity arises, not just when things go wrong.

Creating buffers is one of the most important things you could ever do. What a buffer does is give you flexibility in the decisions you make and it brings you a tremendous amount of peace of mind.

Your Financial Buffer

One important buffer zone is cash that is available on-hand. Bad things happen to good people, and if you haven’t experienced this already—there will come a time in your life where money is tight (or non-existent). You should generally try to keep cash that will cover all your expenses (housing, automobile, insurance, food, etc.) for six to twelve months. If you don’t already have a reserve account, don’t feel like you need to get all the money there right away. Start small: build one month’s reserve this year, two months next year, etc. You can also start with some lump sum (like a bonus at work, your tax return, a gift, etc) to take care of it immediately.

Another reason for having a financial buffer is that it will save you a lot of money. Let me explain. There are certain expenses you will always have in life: food, transportation, living, etc. If you are living paycheck to paycheck than you pay these expenses as they come due. Occasionally money may be tight so you’ll have to rely on credit or some other loan to pay your essential expenses. This will cost you in interest. But just as bad, if you are living paycheck to paycheck you won’t be able to take advantage of financial deals that are presented you—like a car being sold by a neighbor for a few thousand less than it should be (but you don’t have the money because you don’t really need a car for another six months). You can also pay things off early (like rent, car payments, etc) saving you a lot of money in interest. Having money on hand allows you to take advantage of various situations.

You should keep your financial buffer somewhere where you are making money—I chose an ING Direct savings account—but where you can access it quickly if you need to. Another good option is putting it in certificates of deposit where you can ladder your CDs.

Other Buffers

With recent events (911, Katrina, recession fears, etc.) it is also a good idea to have some food and water stored. It is amazing how those essentials seem to disappear in time of disaster—it’s almost impossible to find water in Florida when a hurricane is landing. You should have enough food and water to support your family during any disaster so it is probably a good idea to have at a minimum one week worth of supplies, but again, the more you have the better.

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Tyler Christensen
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Tyler Christensen

Tyler is a husband and dad, professor, writer, web designer, and DIYer.
Tyler Christensen
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