Budgeting can feel like a puzzle sometimes. You’ve got all the pieces – income, expenses, debt payments – and you try to fit them together to get a clear picture of your financial situation.

But what if, despite making sure your expenses are less than your income, you still end up short of money at the end of the month? How can that be? That’s exactly what happened to one of my clients at Advocate Money Management, and her story highlights the importance of considering timing when setting a realistic budget.

I Make Enough Money… Why Am I Still Short?

If you can relate to this question, let me introduce you to Jane (not her real name), a hardworking individual who had been carrying a significant amount of debt from her past. Jane had taken commendable steps to address her debt by working with a debt management company to get her interest rates lowered and by consistently making debt payments.

On paper, Jane’s financial situation looked promising: her monthly expenses, including debt payments, were lower than her monthly income. So why was she still struggling to make ends meet?

When Jane first came to me, she was puzzled. Despite her best efforts, she found herself having to rely on her credit card to cover expenses regularly. It felt like a hole she could never dig herself out of.

At first glance, I thought Jane was in good shape financially, but as I took over managing her day-to-day finances and paying her bills, I uncovered the root of the problem: timing.

The Timing Dilemma

Most of Jane’s expenses were paid monthly, but her paycheck was bi-weekly, and some of her expenses were daily or weekly. Additionally, Jane had some seasonal income, which meant her income levels varied from month to month. This discrepancy in the timing of her income and expenses was causing her financial headaches.

To get a clear understanding of Jane’s financial situation, I laid out all her income and expenses based on the days they would come in. I used the worst-case scenario to see what things would look like in a month where timing issues were most pronounced – a month where big expenses hit before a paycheck came in, only two paychecks were received, and there was no extra seasonal income.

This exercise shed light on the problem: Jane needed a buffer to prevent her from going negative during these challenging months when expenses were due before the income came in.

What is a Budget Buffer? 

Let’s walk through a practical example to illustrate why a buffer may be needed in a budget.

Suppose you take home $52,000 a year after taxes and your expenses are $50,000.  Sounds great, right?  You might even be able to put a little away to save towards some long-term goals (Vegas, anyone?).  But let’s break that down a little further to look at it monthly.

Let’s say your monthly expenses are between $4,000-$4,300 each month depending on the number of days in the month, and your take-home pay is $2,000 every other Friday.

Ten months in the year, you will only get 2 paychecks during the month (for a total of $4,000).  If this happens to also be a month with more days in it where you spend $4,300, you may find yourself short.  To make sure you don’t go negative in your accounts, you would need a $300 balance in your account when you start the month to cover the difference – I call this your “buffer”. 

When you consider that you will need to go through 5 months like this before you see another month with 3 paychecks to cover the difference… you realize you would actually need at least $1,500 at the start to cover all 5 months.

Of course, there are many other things that can impact how much buffer you will need.  For example, if some large bills come in between the two paychecks, you may need more buffer to cover the spending peak.  If you have expenses that can fluctuate month to month, you need to add to your buffer to cover the highest months.

Building a Budget Buffer: A Game Changer

For Jane, understanding the timing issue was the first step, but we needed a plan to address it. Together, Jane and I worked on building a buffer in her account. This buffer would act as a financial cushion to cover expenses when they came in before her paycheck. It was essential to ensure that Jane could handle months with timing issues without resorting to her credit card.

Building the buffer took some time and discipline. We worked with a debt consolidation firm to get her monthly payments lowered even further, and Jane adjusted her spending habits and put any extra income towards creating the buffer.

Slowly but surely, her financial situation began to improve. Having a buffer in place made a world of difference for Jane. She no longer had to stress about covering expenses before her paycheck arrived, and she could stop relying on her credit card to bridge the gap.

The Ripple Effect of Better Timing Management

With the buffer in place, Jane was in a much more comfortable position to handle timing issues going forward. This positive change had a ripple effect on other aspects of her financial life. Her stress levels decreased significantly, and she felt more in control of her finances.

Even better, we were able to make a realistic plan for her long-term financial goals. Without the constant worry of running out of money, Jane could focus on saving for her future. She started setting aside money each month for her long-term goals, such as building an emergency fund and saving for a home.

The buffer not only provided immediate relief but also empowered her to take meaningful steps toward financial stability and growth.

Key Takeaways for Your Budget

Jane’s story is a powerful reminder of the importance of considering timing when setting a realistic budget. Here are some key takeaways to keep in mind:

1. Map Out Your Income and Expenses: Lay out all your income and expenses, first by month to make sure your income covers your expenses (if not – see this post for the process I go through to make a budget balance).  Then, break it down further based on the days they come in. This will help you identify any timing mismatches that could cause financial stress.
2. Prepare for Worst-Case Scenarios: Understand what your finances look like in the worst “timing” month. This will give you a clear picture of when you might need extra funds to cover expenses and how much your buffer needs to be to handle the tight times.
3. Build a Buffer: Having a financial cushion can make a significant difference in managing timing issues. As a starting point, aim to save enough to cover at least one month’s worth of expenses.
4. Adjust Spending Habits: Review your spending habits and find areas where you can cut back temporarily to build your buffer. Every little bit helps.
5. Plan for Seasonal Income: If you have seasonal income, plan how you’ll use it wisely. Consider setting it aside to save it for months with timing challenges.
6. Stay Disciplined: Building a buffer requires discipline and patience. Stay committed to your financial goals, and remember that the effort will pay off in the long run.

Conclusion

Jane’s journey to financial stability wasn’t easy, but understanding the importance of timing in her budget made all the difference. By identifying timing mismatches and building a buffer, she was able to regain control of her finances, reduce stress, and work towards her long-term goals.

At Advocate Money Management, we’re here to help you navigate the complexities of budgeting and financial planning. If you find yourself struggling with similar issues, schedule a consultation with us to find out how we can help. Together, we can create a realistic budget that takes timing into account and sets you on the path to financial success.

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