Jade Warshaw is a popular financial advisor who helps everyday people make smarter decisions with their money. She recently shared a budgeting tip that’s worth considering as you navigate your personal financial landscape.
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That tip? Warshaw said you should leave room for a cash cushion in your bank account each month. Not doing so could be a big mistake that’s costing you. Here’s what a cash cushion is and how it can help.
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Cash Cushion, Problem-Solver
Warshaw used to struggle with overdrawing her accounts. Even though she would plan her budget months in advance, unexpected charges kept messing that budget up.
And if you get charged overdraft fees, these costs add up over time. The Consumer Financial Protection Bureau says American households that overdraft spend more than $185 annually on these fees. But more than that, overdraft fees cause stress and have the potential to disrupt your financial planning.
For instance, an unexpected credit card payment could prevent you from paying your rent on time. It’s best to avoid the issue entirely — and Warshaw said the best way to do that is by adding a cushion to your budget.
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How To Add a Cash Cushion to Your Budget
The easiest way to follow Warshaw’s advice is to create space for a cushion in your budget. That could mean allocating something like $50 per month for this purpose — whatever amount makes the most sense for your financial situation.
If that extra cash piles up over time, you can decide what to do with it then. For instance, you might have a few hundred dollars in your account after a few months without any unexpected expenses. You could transfer those extra dollars out of your account when you no longer need them there.
Tips for Finding an Extra Cash Cushion
Adding a new line item to your budget is difficult if your income doesn’t change. If you’re not sure how you’d find space for a cash cushion, here are some ideas:
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Cut back on subscriptions: The average U.S. consumer now spends nearly $1,000 annually on subscriptions, according to research from Bango. Eliminating one or two from your budget may be all you need to move forward.
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Start using a shopping list: If you aren’t already, try planning your grocery store trips out before going. Doing so can help you make smarter spending decisions and open up new room in your budget.
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Track your spending: It’s also smart to track your spending with an app. Doing so will help you understand where you’re overspending so you can find the budget space you’re after.
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Minimize unnecessary purchases: Finally, try to keep unnecessary purchases to a minimum at this point in your financial journey. Making those sacrifices today will prepare you to enjoy a more comfortable life tomorrow.
Choosing a Financial Strategy
No two people or financial situations are entirely alike. The strategy you choose should reflect your unique concerns. But if you’re like many Americans, Warshaw’s account cushion idea could make sense. It can help you avoid unnecessary bank fees and do more with a limited budget.
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This article originally appeared on GOBankingRates.com: The No. 1 Mistake People Make When It Comes to Their Budgets, According to Jade Warshaw
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