If you’ve read any of my budget posts (like this one), you’ll know that my husband and I live off last month’s income. For example, Andy’s paychecks earned in September will be spent in October. It’s a habit I adopted when I first began using YNAB budgeting software and it’s one that we’ll continue to use until we die. (No, seriously.) But why?
We don’t have to worry about having the money to pay the bills.
Before I had my “buffer” of one month’s money in my checking account, I had to play the “when are the bills due?” game. An example from when I was single: my student loan, Discover card, and the cable bill were all due at the beginning of the month. Before, I had to somehow finagle my money to cover all three expenses plus gas and groceries… pretty hard to do on a small income! Also, at my first HR job, my paychecks were bi-weekly so they didn’t always occur on the same days of the month. I remember once I didn’t get my first paycheck of the month until after my 3 biggest bills were due. It was really stressful trying to make sure I had enough money for the bills and gas and groceries. Now, we don’t have to worry about that any more!
Just in case something happens, we can pay at least one month’s bills.
Does anyone remember a few years ago when the government shut down and military members almost weren’t paid? My husband certainly does, as he was already a service member by that time. Thankfully, the shutdown ended rather quickly and soldiers were paid according to regular schedule. Andy remembers many soldiers worrying about how they would pay their bills if this happened. (There is a program that soldiers could utilize called Army Emergency Relief, but it would have been inundated with requests.) If another shutdown were to occur, we know that we would be able to pay our bills for at least one month until we got a paycheck. Also, when I worked in the civilian sector as an HR Assistant, we had many new employees start with our company who had to go an entire month without a paycheck, thanks to the way our pay system worked. (It was back-processed, so when you left the company you would have your last month of pay deposited into your account after you left.) We had a few employees who lived so tightly paycheck to paycheck that they had to go back to their old employer because they couldn’t afford to wait a month for a paycheck. For me, that’s no reason to be in a job you hate or can’t move up in.
So how do we do this?
Andy and I use an older version of YNAB called YNAB Classic that makes it super easy to live off last month’s money, but you could do it with any budgeting software you use, even if it’s just an Excel document.
In your budget categories, you’d make an extra category called “Buffer.” Any extra money you have at the end of the month will get funneled into your buffer. Continue to do this until you have an average month’s income in the buffer category. Then, you can remove the buffer category from your budget (hide if you’re using YNAB Classic.) At the beginning of the next month, you’ll be able to see exactly how much money you have to spend for that month.
Living off last month’s income has absolutely changed our lives, and we definitely recommend it to anyone. If you think you don’t make enough money to be able to do this, then you especially need to do this!