Author Topic: Calculation of Months 'Buffered'?  (Read 1098 times)

Offline Billy_McSkintos

Calculation of Months 'Buffered'?
« on: January 05, 2017, 11:13:37 PM »
I fear I have depleted my buffer so I am trying to figure it out. I am tired so I am self doubting. I think the calculation is this:

Balance of On-Budget Accounts (x)

divided by

Monthly Budget (y)

=  (z) months of buffer

Is that correct?
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Offline Alex

Re: Calculation of Months 'Buffered'?
« Reply #1 on: January 06, 2017, 08:29:37 AM »
I think it varies for people, but for me:

[Balance of e-fund] / [$ Unavoidable outflows per month]

( + 1 if assigning all income to next month)

For example, if I lose my job I would stop adding to my investments and rainy day/vacation savings, but I would still have to pay rent, groceries, insurance, etc.

I am the Financier owner/admin/coder dude.

Offline Joel

Re: Calculation of Months 'Buffered'?
« Reply #2 on: January 06, 2017, 09:02:10 AM »
For me, the question is simple. Are all paychecks this month marked as available next month?
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Offline RPNnerd

Re: Calculation of Months 'Buffered'?
« Reply #3 on: January 06, 2017, 09:33:48 AM »
I think it varies for people, but for me:

[Balance of e-fund] / [$ Unavoidable outflows per month]

( + 1 if assigning all income to next month)

For example, if I lose my job I would stop adding to my investments and rainy day/vacation savings, but I would still have to pay rent, groceries, insurance, etc.


This the type of thinking I do.  Balance of emergency fund-- it's set aside to be a goal for number of months emergency fund.   How many months?  Well, take a look at the necessary expenses (monthly requirements + usual monthly expenses -- grocery, fuel, etc.).  Then you can divide.

Number of months "buffered"... one.

Number of months "prepared for" ... goal is 6-9 months reserved.  Reserved can be savings, investments that are cash accessible (or CDs that are out a little bit but available in the time period), etc. 

Yet, I assign dollars each month to lots of categories that are not toward being buffered nor toward the emergency fund.  Things like appliance build up, yard maintenance, car repairs, etc.   These would not get assigned dollars in an emergency and may even have dollars taken from them.

Then again, a new appliance could become an emergency -- so you know which category to pull the funds from.


A lot depends upon how you think of the jobs assigned for your dollars and about how you think of the savings you have and associated categories.  100 different categories each getting 5 dollars a month still contributes up to 1000 in 2 months.   Not that one would want 100 different categories nor would necessarily put 5 in each one each month.  But the idea is there- not all of your 100 categories are "buffered" as you think upon next things in life that will impact you or could impact you.   And you can always WAM -- but you're having a plan in either case.  And each person's plan is unique.

Offline jenmas

Re: Calculation of Months 'Buffered'?
« Reply #4 on: January 06, 2017, 09:47:37 AM »
For me, the question is simple. Are all paychecks this month marked as available next month?

For me too because I'm using the old fashioned YNAB definition of buffer which isn't about a financial cushion, it's about an administrative cushion. I have a financial cushion - but that's a separate loss of income category.

Offline Paul

Re: Calculation of Months 'Buffered'?
« Reply #5 on: January 06, 2017, 04:19:18 PM »
For me, the question is simple. Are all paychecks this month marked as available next month?

For me too because I'm using the old fashioned YNAB definition of buffer which isn't about a financial cushion, it's about an administrative cushion. I have a financial cushion - but that's a separate loss of income category.
Yes, I agree. I live on my previous months income, building suitable contingency funds into my everyday budgeting (for unexpected car repairs, house repairs etc) and put any balance into off budget savings.

Offline Joel

Re: Calculation of Months 'Buffered'?
« Reply #6 on: January 06, 2017, 04:57:32 PM »
Having said the statementa bout all paychecks being marked as for next month, I wanted to reflect on this a bit more. I'm currently renting, and we have enough excess that an emergency can be covered by our monthly savings, or worst case, from our home downpayment savings. Once we finally buy a house and no longer have the same amount of monthly excess, I will need to better define my various emergency funds.

I save monthly for car replacement / repairs currently, and that would be sufficient. We also have a chunk of savings allocated for medical emergencies. I will need a dedicated category for home repairs and maintenance at some point. And when we have children, I'm sure the budget will be turned upside down yet again.
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Offline jeremiahsvow

Re: Calculation of Months 'Buffered'?
« Reply #7 on: January 06, 2017, 05:06:10 PM »
For me, the question is simple. Are all paychecks this month marked as available next month?

I have been following how your answer the "buffer" question since I started YNAB. It really is amazing that people don't "get it" (not meant in a derogatory way either). I asked this question myself and once you said this, I was like, "Um... that's it? OK."

Maybe we should come up with a different word that better describes or illustrates the answer. LOL.

Offline Mike

Re: Calculation of Months 'Buffered'?
« Reply #8 on: January 06, 2017, 05:13:37 PM »
This discussion reminds me of a YNAB4 forum post from Patzer back in 2011. At the time I had accumulated large balances in my rainy day and long term savings categories so I could no longer see the need for the rule 4 buffer, but still felt that I should follow the rules and live on last month's income. Patzer's post helped me understand that I did not need to use the rule 4 buffer. I made a note of his post for future reference. Yes, 6 years later I still have it.



For me, the buffer is a timing convenience only. It allows me to do my major budgeting once a month, instead of twice (when I get paid) plus some tag ends when the interest posts to my accounts as various times during the month. The buffer is not really a dollar cushion, it's a temporal cushion.

I've said this before, and no doubt I'll say it again: For a budget that is dominated by categories which are spent every month, the buffer is important. It might be the only thing between the budgeter with tight cash flow and an overdraft in the event of a mistake or unforseen increase in expenses.

For a budget that is dominated by Rainy Day categories, the buffer is not terribly important. My budget is dominated by big Rainy Day categories; the stuff I spend every month, regularly, is a relatively small amount of the money I budget each month. Since I don't expect to be spending down all those Rainy Day categories at once, the buffer is truly irrelevant to me from a financial perspective. YNAB would work just as well if I gave each dollar a job as I received it, instead of routing it through Personnel to be processed at the beginning of the month. I route the dollars through Personnel before giving them jobs because it's more convenient to me, not because it's vital that they wait for the job assignment.

It grates on my nerves to see the buffer characterized as a cash cushion, because that's not its job. The whole idea of the buffer being a cash cushion implies that budgeted dollars are spent every month. That could be true in some budgets, but it shouldn't be true in most budgets. In most budgets, there should be categories that are building over time for regular or unpredictable expense outflows. Once these Rainy Day categories are built to reasonable levels, the buffer's role as a cash cushion becomes irrelevant. Its role as a user convenience (budgeting only once) remains.

Patzer



In the Cascade Mountains of Oregon

Offline jeremiahsvow

Re: Calculation of Months 'Buffered'?
« Reply #9 on: January 06, 2017, 05:19:19 PM »
@Mike

That is a really helpful explanation. The only thing I would say is that many people may not be able to see the forest because they are trapped trying to get out from under the trees. I know that was my case.

However, now, on this side of everything I have learned about budgeting and fiscal awareness, I read that explanation and can say, "Right on." I am not sure I would have been able to before. It just takes time. I know it did for me.

Offline RPNnerd

Re: Calculation of Months 'Buffered'?
« Reply #10 on: January 07, 2017, 08:28:38 AM »
Patzer has a way with words.  I would like to say that's what I was intending to say.... but I don't know if I even covered it partially as well.

I was introducing concepts of buffering the other night to a young millennial.  I said the intent is to use your cash flow (that's an important concept) to be spending from what has been budgeted this month while pushing income into next month so you have time to make decisions.


Previously I wasn't too far off on this approach except I wasn't on a zero sum budget.  I would do an eye ball estimate of what was coming and then assess my account so the lowest point of the month the checking account would be about one month of total expenses.

I had thought the original question in this thread was "how do you calculate months of emergency fund/expenses saved up (in a buffer)?" which is more nuanced than "how do I know I'm buffered?"



Offline Billy_McSkintos

Re: Calculation of Months 'Buffered'?
« Reply #11 on: January 11, 2017, 02:16:18 PM »
Is there an enhancement here that can calculate the buffer $ and/or months of buffer. Perhaps something like:

Buffer = [User selection of on and off budget accounts] + [User Selection of Budget Balances] - [selection of budget categories]

That, I think, would capture those that keep buffer in accounts and those that have it budget balance and allows the buffer to be calculated based on granular budget category selection. e.g. NEED categories vs the WANT/NICE TO HAVE categories.

Or, is this some AOM witchcraft invading my thinking...
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Offline Joel

Re: Calculation of Months 'Buffered'?
« Reply #12 on: January 11, 2017, 02:51:57 PM »
Or, is this some AOM witchcraft invading my thinking...

... In my opinion, there are higher priorities than some silly score or widget.
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Offline Billy_McSkintos

Re: Calculation of Months 'Buffered'?
« Reply #13 on: January 11, 2017, 03:51:34 PM »
...anyway...

Not looking to steal priorities but merely garner opinion on whether this would useful or relevant to anybody but me.
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Offline Joel

Re: Calculation of Months 'Buffered'?
« Reply #14 on: January 11, 2017, 04:21:08 PM »
...anyway...

Not looking to steal priorities but merely garner opinion on whether this would useful or relevant to anybody but me.

If there was eventually a reporting dashboard, I like the idea of several bells, whistles, and scores like this.
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