So it’s the first month of a new year, and everyone is re-evaluating their budgets in January (if you aren’t-you should be!). If you’ve been keeping up with me, you’ll know that I have some amount of credit card debt that I revealed in my post: Dirty Financial Confessions. Ready for one more? I went over budget in all categories 8/12 months last year. Yikes! What is a girl to do?
It was only 30-40 dollars over each time, but if you multiply by that by 8, you can get the entire balance on one of my credit cards. So upsetting, but I know I’m not alone. I’ve talked to several other PF bloggers about this, and I’ve set on a mission to determine the culprit. After hours of time in my Learnvest “My Money Center” (which you should get if you don’t have it already, it’s fricking amaaaaazing.) I realized the budget overages were for expenses I knew were coming, but did not plan accurately for. Categories like beauty, Murray’s vet bills, my contacts that I order every three months, Car Maintenance, you get the idea.
Having an itemized budget was perfect for when I was poor and didn’t have to juggle so many responsibilities. Now I am a busy girl, and my expenses are always variable. Besides, it’s not like I can go without fixing my car or feeding my dog. I was severely dropping the ball by not having a plan for these items; that stops today.
awwww, yeah. giggity.
How to Save for A Money Cushion
My spending was all over the place: $70 a month in one category, then I’d only spend $7 the next month to “make up the deficit” but I wasn’t really putting that money anywhere. I decided to try the money cushion method. This is different than an emergency fund, which everyone should have. A “money cushion” is an amount left over in your account to cover those little expenses that come every so often. I’m not talking about the money left over after you have paid bills and put money in savings. Your money cushion needs to have more structure to support you, see?
Having used Learnvest for over a year now I have a wealth a data, and cute, colorful graphs that show me how much I have spent on a given category over a period of time. They even conveniently give you an average dollar amount spent for the category, which helped me plan. I took this information and set aside the actual amount in my monthly budget. It doesn’t have to be big enough to cover the desired expense in one swoop-the important part is that you are saving for these items.
What if you don’t have historical data? Think about what you are going to need going forward. I know exactly how much it costs for my monthly prescriptions, my dog’s food, to get a haircut. I take these amounts and divide them by the number of months they regularly occur. For example:
It costs $33.00 for a bag of organic dog food for Murray. The bag usually lasts about two months.
So I take $33.00/2=$16.50
I set aside $16.50 in an envelope/jar/safe place (in cash and in hand, because that is the way it works best for me. Otherwise I will spend the money if it is in my checking account.)
I feel a little behind the curve because I just starting saving for my money cushion this month, coincidentally a month when most of the things I needed swung around again. I ended up taking a small amount of money out of my emergency fund to help balance out the difference and avoid putting the purchases on my credit card. I can now start fresh saving next month.
There are several ways to implement and use a money cushion, every blogger I know has a different method and they all work, just so long as you have some variable money is the important thing. It’s vital if you want to stay on track and avoid massive overages.
Do you have a money cushion?
Hi, my name is Lauren but I'm known to those nearest and dearest as L. Bee. After twenty-five years on the planet I have worked in a lot of industries, moved to many different cities, and made almost every money mistake you can make.Join me on my journey as I navigate my twenties and try not to pick my "money tree" bare.
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Yeah, we have a money cushion but we still stick to our budget. We have a miscellaneous category and any small unexpected expense comes out of that. I think it helps us keep on track with all of our other categories.
Holly@ClubThrifty recently posted..Juicing Vegetables: My Unfrugal Obsession
I don’t know if I could handle having one “misc” category, I feel like I would get too sloppy with it!
We keep a $3K minimum balance in our main account to offset bank fees, (nowhere will we see a $15′ish interest a month, so this works for us!) and we have a side savings (cushion$ with $1100 that I’m working on building up for the “little things” that don’t qualify as an emergency. Like you we were pulling $$ out of our EF for this & that…. So having a slush fund is ideal so we can continue to build up our EF without it constantly being dug into! We still adhere to a tight budget though… Our slush fund is just for the extra stuff & I add to it weekly.
Carla recently posted..January Challenge: Home Stretch!!
You are such a model of good financial planning and will-power, Not touching your slush fund at all
We save this way for irregular expenses, but into multiple short-term savings accounts instead of one envelope. I love this system! It gives me such peace of mind. It’s really my favorite thing about our budget.
Emily @ evolvingPF recently posted..Upcoming Transition and a Potential Financial Overhaul
I will let you know how it goes!
We definitely have a cushion. I actually have an insane fear that something will come up, so I always try and leave a little leftover for that.
Michelle recently posted..What Does a Virtual Assistant Do?
I need this insane fear beaten into me with a stick!
We probably have a bigger cushion than we truly need, since we’re pretty good at staying on budget, but it helps us avoid banking fees, and we know that we’ve got plenty of money within quick reach if something goes down and we need to have major work done at the duplex or something like that.
Mrs. Pop @ Planting Our Pennies recently posted..He Said She Said: A Team of Professionals
Several people have commented about banking fees. I still have my student checking account so having them charge you money for not keeping enough in there is completely foreign to me!
Im starting to build mine up again, I only have about 3 months of living expenses, I am aiming for 8 months.
RichUncle EL recently posted..What makes your World go Round?
I like to keep a cushion as well–large enough to cover any “oops” moments but not so big that it derails other financial progress (ie I don’t consistently pad the accounts, etc.).
I love that you’re breaking down costs into monthly amounts even if you technically don’t pay those amounts each month. It’s so important to do this!
The Happy Homeowner recently posted..Personal Finance and Lance Armstrong: What You Can Learn from Lance’s Fall from Grace
I have a cushion of about $1,000 that is a month of normal expenses, could maybe last two months by making big cuts. It helps weather the storm, either with extra expenses or delayed payments from tenants or freelance gigs.
Pauline recently posted..13 money resolutions for 2013: #12 make a plan!
Love your approach. I’m re-reading Suze Orman’s books and she mentions that the average person messes up their budget in exactly the same way you did: they catch all the recurring expenses, but those non-recurring, one-offs, or expenses that happen less often than monthly get forgotten.
A money cushion is a great idea. Leaving it out of your checking account? Even better.
AverageJoe recently posted..College Planning Strategy: A Creative (and Effective) Option
I have always had a money cushion. I get nervous when my cushion gets deflated some, but that is because I am a planner and that is just what I do. I enjoyed the title by the way…..
Grayson @ Debt Roundup recently posted..Are You In Debt? Stop The Expensive Vacations!
A money cushion sounds like a great idea. We have an EF, but there are obviously times where we have to pull from it which can be annoying! I admit, I am a newbie to Learnvest. I will definitely have to look into this
Mackenzie recently posted..So, I Knew This Girl…
We had one but sort of blew through it when I was put on mat leave 6 weeks earlier than expected. We will be rebuilding it soon…having said that we’ve just readjusted our budget because we seemed to consistently be going over by about $20.00 each week.
Catherine recently posted..The Value of A Dollar Through Life’s Stages
We put aside $120 every week into a ‘bills’ account for all those less frequent but regular expenses – utilities, car costs, insurance, etc. They used to blow my budget, too…
eemusings recently posted..Eat of the week: Cazador, Mt Eden
I do have a cushion and I always seem to use it. Like you I’ve struggled to stay in budget, especially in a couple key categories. I have $40 left to spend for food for Jan. I have NEVER stayed in budget in this category and I don’t care if I have to eat eggs for 14 days straight I’m bound and determined to make it happen. OK, enough venting.
Budget & the Beach recently posted..Dream Technology
Hmm, I have a pet money cushion for sure. I put away $15 per week into my savings account for pet food, vet bills, and supplies. Sometimes there’s quite a bit of money in the account, like in winter when I’m not paying for dewormer and flea medication, and sometimes there’s very little in it, like right after a vet check. Any time I buy something pet related out of my chequing account (where I keep my cash for groceries, gas and such), I reimburse it from that line item in my savings account. Since it’s not in the chequing account, I’m not tempted to spend it on other stuff. Same goes for my house cushion, $90 a month in the savings, reimbursing my chequing as needed.
Jordann @ My Alternate Life recently posted..Travel Like a Minimalist – Packing
Never heard of Learnvest. I guess I will have to check it out. I have two savings accounts at my credit union, and I divide my savings up between them. One is my emergency fund that I’m building and the other is for unexpected stuff. I get to use it for helping out family mostly who don’t plan for such things as unexpected expenses. And for birthdays because I don’t like to allocate money to someone for their birthday. Presents should be a little more spontaneous.
I never thought about it as a “cushion”, but that’s exactly what I have and it’s set-up pretty much like Carla’s. I keep $3k to stave of hungry fee monsters, but I have an extra $1800 on top of that. I’ve somehow mentally trained myself over the years that $4,800 is my $0. (I don’t know why that amount exactly, just the way it turned out.) Sometimes I feel foolish (am I’m told as much) because there’s *way* better things to do with an extra $1,800 than letting it sit in a chequing account making nothing, but I can’t get my head around it. Going below (or getting rid of that extra) in reality wouldn’t hurt me in the slightest, but it makes my stomach turn even thinking about it.
I have a cushion. I think it’s important to have a cushion. Mine hovers around $3k, and anytime it gets below that…..well I panic. Like Ed said above, my $3k is like $0.
Great post.
Eddie recently posted..Thought You Should Know: Google Owns Your Online Identity
Never heard of a money cushion but we made up our own name “projected expenses” which are those little expenses that pop up that people seem to forget about. For example: If we know we have to pay for our drivers licence of $90 once per year we save $7.50 a month every month in a projected expenses account. When the time comes to pay for the licence, the money is there. We continue to save for 12 months for items that overlap or are early in the year.We save the money in a separate account not an emergency savings. It’s worked out awesome for us and now it’s built into our budget. No more taking money from our savings account that is not an emergency.Great post Lauren.
Canadianbudgetbinder recently posted..Mr.CBB’s Personal Finance Weekly Reading List #4 Rob Ford In From The Cold, The Sandwich Generation
The itemized budget is a perfect idea especially for those who are new to this thing. Saving for emergency funds and money cushions are also excellent suggestions.