The 3% Buffer

By Melissa Tosetti

It’s impossible to plan for every single little expense.  Or is it?

My stepmom Linda was a fiscal analyst for a school district until she retired.  Many years ago, she asked me if we used a 3% reserve/buffer in our Spending Plans for clients.  I answered her question by the “deer in headlights” look on my face.

I had no idea what a 3% buffer was.  She went on to explain that most organizations included a 3% reserve in their budgets for unexpected expenses – for individuals and families, this would be beyond what an emergency fund would cover.

This was one of those moments for me when the clouds parted, the sun shined down and unicorns pranced across the sky.

A 3% buffer made so much sense!

When we work with clients to create Spending Plans, we use a zero-sum budget process – giving every dollar a purpose.  When there is money left over, the goal is for that money to go toward a savings vehicle.  But, what about those small expenses that randomly pop up throughout the year that are not emergencies – that don’t warrant pulling from your emergency fund?  Admittedly, this had been a sticky point.

A few of the expenses I was personally thrown off by over the years include:

  • School pictures – something I always forgot to budget for
  • Replacing an item such as a pot or pan – didn’t anticipate it wearing out
  • Unexpected social engagement – friends in from out of town
  • Contributing to an unexpected charitable need – such as the Paradise fire recovery efforts

While the school picture expense falls into the “I just forget every year” category, the others are unexpected, but don’t warrant pulling from an emergency fund and yet, they need to be paid from somewhere.  It’s tempting to create a Miscellaneous category.  The reason I hesitate calling it that is because I know how easy it can be to just throw expenses into that category until you’re spending more in that category than your rent or mortgage.  Miscellaneous categories are less purposeful and can condone overspending.  They can unconsciously give you a “pass” in really thinking through purchases.  By putting a specific amount there (and titling it as such) you’re having to really think through those unexpected expenses and decide if it’s worth dedicating your 3% for that month to that expense.

One of the reasons I’ve become such a fan of the 3% Buffer is that it takes so much pressure off of clients knowing they have a little leeway, ultimately setting them up for success.


Melissa Tosetti is the founder of The Savvy Life and author of the international bestseller Living The Savvy Life. For the past eight years, she’s worked with over 575 individuals and families to create Spending Plans. Melissa also works with financial advisors and their clients doing cash flow planning as well as giving over 200 Savvy Living presentations via webinar and in-person to audiences across the U.S.

If you’d like to learn more about how Melissa works with clients visit The Savvy Life’s Programs page.

If you’d like to learn more about how Melissa works with financial advisors and their clients visit: The Savvy Life Advisor’s Page