When you are first starting out in Weekly, although it’s not typical, it’s possible that your Safe-to-Spend could be larger than your cash balance in the bank. Yikes! How can this be?
Obviously, you can’t spend money you don’t have (well, you can but it will be on a credit card). But because Weekly is based on averages, it’s possible to have a cash balance greater than your Safe-to-Spend if you don’t have any cash cushion and you are in that part of the month where your bigger bills are coming due. Let me give you an example to help explain it.
Here’s An Example of How Your Safe-to-Spend Can Be Greater than Bank Balance
Let’s say you get paid twice a month once on the 1st and the 15th and you get $1,000 each pay period and you have a rent payment of $1,500 that is withdrawn on the 6th of the month. And for the sake of argument, let’s say rent was the only recurring bill you had.
In this scenario, your total recurring income is $2,000 and all your recurring bills are $1,500, so you have monthly discretionary spending of $500. Weekly is based on averages so to find your weekly spending limit, weekly would divide that $500 by 4.3 (4.3 weeks on average in a month) to get a weekly spending limit of $116.
| Recurring Income | $2,000 |
| Recurring Bills | $1,500 |
| Discretionary Spending | $500 |
| Weekly Spending Limit | $500 /4.3 = $116 |
Now, let’s say you don’t have a cash cushion so your bank account balance at the beginning of the month is $0. Also to keep things simple and clean, let’s say you spent none of your weekly spending money.
Well, at the beginning of the month, you cash balance would be $1000 when you got paid, but it would be -$500 after the 6th of the month because you rent bill came out. However since your weekly spending limit is based on monthly discretionary funds, it remains positive when the bank balance in negative (see highlighted weeks below).
| Actual Cash Balance | Weekly Spending Limit with Rollover OFF | Weekly Spending Limit with Rollover ON | Date |
|---|---|---|---|
| $1,000 | $116 | $116 | 1st of the month |
| -$500 | $116 | $232 | 7th of the month |
| -$500 | $116 | $348 | 14th of the month |
| $500 | $116 | $464* | 21st of the month |
* Note: the reason that the Weekly Spending Limit with rollover turned on is not exactly $500 is because there are on average not 4 weeks in a month but 4.3 weeks.
In this scenario, on the 7th of the month your bank account would be -$500 but your Safe-to-Spend balance would be $116 or $232 based on whether your rollover was turned off or on. Then on the 14th of the month your Safe-to-Spend balance would be $116 or $348 but your bank balance would still be -$500 because your next payday was on the 16th.
So, in most cases the Safe-to-Spend is less than the checking account balance but if you’re just starting and you don’t have a cushion in your checking account to cover the fluctuations of your income and bills it can be more.
What we recommend doing in this situation is to create a savings fund and add a weekly contribution for how much you’d like to set aside to build your cash cushion. This will lower your Weekly Spending Limit (and in turn your Safe-to-Spend). If you follow your Safe-to-Spend amount then you’ll be spending less than you’re earning and your checking account balance will go up over time.
While you are building up your savings, you can use the Upcoming Items report on the dashboard to help see what’s coming up in the next few days.
Conclusion
Having a cash cushion is an important step making sure you can make the transition to using average in your spending to avoid not overspending your bank account. You can setup automatic savings in your Weekly to start building a cash cushion to make the transition to spending on averages.
