Rule Four: Live on Last Month’s Income

How do I live on last month's income?

Rule Four Video

In order to live on last month’s income, you first save up enough money to cover a month’s worth of expenses. When you save this money and put it to work, we call that a Buffer. The buffer allows you to put some space between when you receive your income and when you actually need to put it to work. This breaks the paycheck-to-paycheck cycle, provides you more time to plan when the unexpected happens, and also allows you to budget for the whole month at once.

How do I save a buffer?

Most folks don't start out with an extra month of income on hand, so we recommend a simple three step process to get you there. As a part of your budgeting, you’ll assign some dollars you have now to future needs. In this way, saving for a Buffer is very similar to using Rule 2 and Saving for a Rainy Day.

Specifically, you’re going to budget some money each month to a Buffer category, then put it to use when you have reached your goal.

To keep things simple, let’s say Caroline earns $3000 each month. She is able to cover all her expenses with $2500, and so will be able to save $500 each month toward her YNAB Buffer. Each month Caroline assigns $500 to a newly created buffer category that she has created.

April and May

June and July


The buffer category now has enough money in it to cover September.  To release the money from the category and make it available again, enter a negative number.


Now, she can hide the buffer category. Any income she receives from this point she will categorize as Income: Available Next Month.

How long does it take to get a buffer?

Most people tell us it takes between 4 and 6 months, but it’s different for everyone. You'll get there by living on less than you earn.

Where should I keep my buffer?

We recommend keeping it in your checking account, because that’s where it needs to be to do its job. The Buffer is designed to improve cash flow, and your checking account is where you manage the flow of cash in your life.

Some people worry that if they keep a lot of money in their checking account they’ll spend it. Once you start budgeting, the category balance on the Budget guides your decision making process - not the bank balance.  So as long you spend according to your plan, you’ll be fine.