We've talked a bit about padding in previous posts, but I thought I'd create a post just to explain how padding your budget works.

In the last post, I mentioned rounding down income and rounding up expenses.  This creates padding.

For instance in Step 2 of my budget, though I get a bi-weekly paycheck of $268, I rounded it down to $250.  That creates $18 worth of padding per check or $36 worth per month.  That $36 does disappear from my budget, but I haven't lost the money.  The money still comes in with my paycheck.  

Inversely, I've budgetted $63.70 for my electric bill (based on my share of the highest one we've had).  This month however my third of the bill is only $40.23.  So this month I have $23.47 in padding from that.

Just from those two items alone, my padding has added up to $59.47.

Padding is useful for all those minor emergencies, for instance your printer runs out of ink or your electric bill was unexpectedly higher than you had budgetted for.  It's kind of a safety net for unexpected trip ups.  Hopefully you're building up an emergency fund too for those major catrasophes, but you don't want to dip into that unless it's a true emergency.

If you keep your padding in your wallet, you're likely to spend it all, so generally you want to stick it in your checking account where it's still accessible but not too easily so.  I have direct deposit, so it's a little easier, but if you get a physical check, you should deposit the entire thing, minus your spending allowance and cash you need to pull out for known necessities instead of only depositing the amount you want to save.  Limiting the cash you have on hand (and not relying on cards) is one of the best ways to get your day to day spending under control.

Since it's not in your budget, it's easy to forget about the padding, and that's a good thing.  It's kinda fun to watch your account grow faster than you had predicted and a great relief when you do have an unexpected expense pop up.