Young & Prudent: The Buffer Zone
I spent most of my twenties wishing I had a little more space to mess up.
A few months after I graduated at 22, I started working in the marketing department for a small school in downtown Baltimore. I rented a room in a shared house in the city, bought myself the cheapest business casual clothes I could find, and worked 40 hours a week in a cubicle.
“You have, like, a REAL job,” all my friends said.
I was definitely lucky to be employed full time in 2008. Still, I was jealous of my peers who were working in coffee shops and restaurants, partying after work all night, and sleeping until noon.
They had the space to be irresponsible – to get drunk with their boss, or get fired for not showing up and start over with another restaurant.
I couldn’t throw away my precious salaried job like that. No, I had to be good, network, and start down my chosen career path.
Now, for better or worse, my twenties are almost over and so is that bumpy, pre-real-adult period.
But having a buffer zone to screw up in still isn’t a bad idea. After all, even adults make mistakes, especially with money.
Building the Bank Account Buffer
I was living paycheck-to-paycheck a little more recently than I would like to admit. I had no trouble paying the bills and doing the fun things I wanted, but almost every month I would think, “If only I had an extra $1,000 in my checking account, I would feel so much more comfortable.”
I must have been channeling some inherent financial wisdom, because that idea is actually a classic financial planning concept. It’s called the bank account buffer, cash cushion, or rainy day fund.
The bank account buffer shouldn’t be confused with your emergency or long-term savings – which is money that sits in an interest-bearing savings account that you contribute to with every paycheck.
Instead, the buffer is money that stays in your checking account. You never actually spend it.
The buffer should be between one- and two-weeks’ worth of pay. So, if you’re netting $2,000 a month, you should have a buffer of between $500 and $1,000.
It may seem impossible to save even more when you’re already living paycheck to paycheck. But to create a buffer, you only need to tighten your belt temporarily to build up the cash.
You could try dropping all unnecessary expenses for a few months. Sure, it’s uncomfortable and frustrating to eat grilled cheese for a month, and never go out with friends. But the temporary discipline will pay off. And once you have the buffer, you have it.
Many financial advisors say that building a buffer is the first step to improving financial health.
You see, when you’re living without much expendable income, a bank account buffer allows you to screw up from time to time.
If you’re like I used to be, most of each paycheck is probably consistently allocated to certain bills, budget items, loan repayments, and savings. For most people in their 20s and 30s, this doesn’t leave much room for periodic spontaneity.
An unexpected night out with friends could turn into an overdraft nightmare. In the glow of laughter and a few drinks, it’s all too easy to put unplanned purchases on your credit card and get into debt.
Living that tightly could also make you even more neurotic about money. Which can, in fact, lead you into spending more money.
Spending Your Way to Happiness?
When I didn’t have my buffer zone, I would check my bank account constantly, waiting for each automatic bill payment to clear. I took my checking account down to the dollar, and would often transfer small amounts out of my savings to get through the month because I hadn’t planned well.
While being that vigilant might seem like a good habit to cultivate, it made me stressed and anxious.
It’s like when you decide to eat healthier, and you say to yourself, “I am not going to eat ice cream any more.”
Of course, you immediately want all the ice cream you can get. You obsess over it. You decide that you have eaten healthy food all day, and tell yourself you really actually deserve a little ice cream. A few scoops later, your resolution is out the door.
I have the same experience with money. The more restricted I try to be, the more I want to spend.
In our society, money – specifically spending money – is associated with success. And successful people are thought to be living the dream; they’re happy and content.
By telling myself I couldn’t spend, it felt like I was restricting access to my own contentment.
My lack of money made me frustrated because I felt I deserved the happiness that supposedly comes with spending it. So I would spend foolishly to try to force a sense of contentment in myself.
Then I built up a buffer zone and all that neurosis surrounding spending money greatly lessened.
When I didn’t have to restrict myself, spending seemed less alluring. Just like telling myself I can eat as much ice cream as I want.
I loosened up and gave myself space. Suddenly, it was easier to see clearly and make logical decisions. When I felt I had a choice of whether or not to buy that new top, I could see clearly that I really didn’t need it.
Not only that, but I could see that maybe I was hoping that getting a new top would improve something a little more than my wardrobe – something internal that I was trying to fix.