YNAB You Need A Budget

[kirdyq]

How do you budget for income in YNAB? I am kind of getting frustrated that I can forecast out my expenses, but it always shows that I'm overbudget, b/c I can never enter in our paychecks.

Help appreciated!

[YYC27]

To make the best use of YNAB, you need to understand that it's approach to budgeting is quite different from the traditional model. You don't budget future income because you haven't received that income yet.

Your budget is a plan for what you have now. If I have $1,000 in the bank, that's the total amount I have available to divvy up between my budget categories. It's irrelevant that I'm going to receive more income in the month. If I start budgeting based on another $2,000 of anticipated income, my category balances become meaningless, and I run the risk of overdrawing my account.

[Joel]

You just make sure your budgeted amount for each month is less than your anticipated income.

I wrote up a long thread about how I forecast (see signature)

[los lobos marinos]

How do you budget for income in YNAB? I am kind of getting frustrated that I can forecast out my expenses, but it always shows that I'm overbudget, b/c I can never enter in our paychecks.

Hi,

It's good that you posted this question within the 'The YNAB Method' sub-forum.

The YNAB software is designed to implement the four rules of the methodology and what you are trying to do falls outside of those parameters. The first rule 'Give Every Dollar A Job' is zero-based budgeting in action, where you budget income received until you arrive at zero. Forecasting income and budgeting money before it has been received is not consistent with rule one and therefore does not work within YNAB.

It doesn't mean you cannot use and apply the YNAB method whilst forecasting/projecting simultaneously (there are workarounds). Checkout Joels' solution. Also, some users enter in the the budget numbers for the next month (not in the current month) to forecast. I make a duplicate copy of my current budget and do my forecasts within that, updating the annual numbers every quarter as goals change.

[kirdyq]

Thanks, I'll check out Joel's post.

I understand the value of not budgeting more than you have, and that is great in the short term. However, I was just finding it frustrating that I could budget my expenses farther out that one month (given income earned this month is for next month), but I could also not project my income out that far. It makes it very difficult to budget for long term projects that we have in mind. It would be nice if there were a simplistic workaround to do this, or maybe I am just not seeing it as I'm fairly new to YNAB. We are far, far past the days of living paycheck to paycheck. I suppose as a CPA who is used to budgeting and forecasting, I just find it eternally frustrating to be only able to budget expenses and not income - it's like half the puzzle pieces are missing!! How can I set my long term goals!

[los lobos marinos]

...I just find it eternally frustrating to be only able to budget expenses and not income - it's like half the puzzle pieces are missing!! How can I set my long term goals!

Personally, I would like to see forecasting/projecting budgets, expenses & income functionality implemented within YNAB as an expansion pack or add-on module. This would keep it separated from the YNAB method.

IMO it is the method that makes YNAB a unique money management product, supported by the educational services to teach users how to implement the four rules, that set YNAB apart from other software available. That is why I would want to keep the core method and forecasting modules separated.

[YYC27]

I find YNAB's best as an allocator of what I have. I set my goals using criteria that works for me (and that probably wouldn't work for anyone else), and use YNAB to keep tabs on where I'm at. I find it's fantastic for giving me piece of mind, in that I know what the big chunk of cash in my bank account is earmarked for. I've fallen off the YNAB wagon a few times, and my problem is never crazy overspending, but a paralysis about making bigish financial commitments because I just don't know where I stand.

[TLBauer]

Actually, I have been budgeting for income for over a year in YNAB (first YNAB3 and now YNAB4). It is relatively easy to do, and works better in YNAB4 than it did in YNAB3 (due to the improved reporting).

It is, however, a work around.

Basically, at the top of my Budget page, I created a Master Category called "Budgeted Incomes." I then created sub-categories for each of the revenue streams that I wanted to track. To budget your incomes, you enter negative values into the budget columns. You can enter the budget values for the entire year. I create my budget plan for the year in a spreadsheet, and then when I am happy with the figures, I enter the budgeted incomes and expenses for the year into YNAB.

Entering income is like entering any expense into your account register, except that you do not use the "income this month" or "income next month" options. Simply select the budgeted income category to which you wish to post. When you look at your budget page, the income will appear in the "Outflows" column as a positive value.

What this allows me to do is to record incomes into the month into which they are received. If I want to push monies into the next month, I simply budget less than I receive. The resulting positive balance is carried forward into the next month. I can either budget those incomes in that next month, or allow them to flow forward for as long as I wish.

In my case, I am working from a full buffer. So, at the end of one month, I simply adjust the budget column of the next month to use the entire positive balance from the previous month. So, in actuality, I am simulating the "income next month" method of receiving income under the stock YNAB scenario. I am simply budgeting the monies from the previous month in the current one, and allowing the money received in the current month to flow forward into the next month.

Reporting is fairly simple with YNAB4. If you de-select your Budgeted Incomes master category, then you can print out all of your expenses for the month using the "Income vs. Expense" for the month. If you de-select all categories and then select only the Budgeted Incomes master category, you can print out your incomes for the month. And, if you select everything, you can print out a "P&L" statement for the month.

It works for me.

[philospher77]

Thanks, I'll check out Joel's post.

I understand the value of not budgeting more than you have, and that is great in the short term. However, I was just finding it frustrating that I could budget my expenses farther out that one month (given income earned this month is for next month), but I could also not project my income out that far. It makes it very difficult to budget for long term projects that we have in mind. It would be nice if there were a simplistic workaround to do this, or maybe I am just not seeing it as I'm fairly new to YNAB. We are far, far past the days of living paycheck to paycheck. I suppose as a CPA who is used to budgeting and forecasting, I just find it eternally frustrating to be only able to budget expenses and not income - it's like half the puzzle pieces are missing!! How can I set my long term goals!

The important thing to keep in mind about future income is that you may not get it. And I am not clear how it makes budgeting for long-term projects harder. In other words, if you know that you want to do a 24K project 2 years from now, you know that you need to save 1K a month until then. You save up the money, then pay for whatever it is, and all is good. If, on the other hand, you want to start today on that project and pay 1K each month for it for the next 2 years, and you know that you currently make 3K a month and can swing that payment with no problem, well, I'd just budget that each month since you are going on faith that your income is not going down in the next 2 years. Projecting it out for the next two years won't make a difference to reality if you suddenly take a 1500 pay cut in 8 months.

So, not being a CPA, I guess I am just not seeing what the advantage of projecting income is.

[litterbug]

It makes it very difficult to budget for long term projects that we have in mind. . . . I suppose as a CPA who is used to budgeting and forecasting, I just find it eternally frustrating to be only able to budget expenses and not income - it's like half the puzzle pieces are missing!! How can I set my long term goals!

I think many CPAs and other financial types have a hard time dealing with the YNAB system because they're used to the traditional approach to budgeting. But YNAB's software is a specialized tool to implement the YNAB method, and if you'll read the materials on YNAB's four rules you'll see that YNAB is made to lead one away from traditional budgeting, with its long term goals. For someone who can't manage their daily spending, those goals and targets are a prescription for chronic failure.

Therefore, neither the method or the software is meant to focus on forecasted spending or income. Instead, they use the tool of spending by category balances. For those of us who lack savings and are generally in serious or at least scary debt, this helps us learn about daily spending patterns, and our changing category balances provide the feedback we need to identify our priorities and learn to direct our resources at the things that matter to us. This is the first job for a budgeter, and it's why YNAB very deliberately does not make it easy for the user to forecast. Managing spending--living within your means and putting your self in a position to pay off debt and/or build savings-- is the first step for all us new budgeters. Many want to skip that step because traditional budgeting insists on projecting into the future.

I don't use either Joel's or TL Bauer's method of forecasting, but I've planned for long term goals since I started YNAB. Let me qualify that: it's been so long since I was in good enough financial shape that I saw no point in having long term goals of any kind. Anyhow, I figure out my target date, target amount, and amount per month (I have a buffer, so I budget monthly) to budget to the savings category, and I put all that information in the category note. If I for some reason have to pull money from the category, I put the amount I need to make up into the note and, in the meantime, the adjusted amount per month to add in order to still reach my goal when I need the money even if I never 'pay back' the amount I raided.

Note that Joel and TL Bauer are long-time YNAB users, and both of them learned the YNAB system the way it's meant to be used before they branched out into long-term forecasting. I'm not sure what brought you to YNAB, but even if you're flush and have no financial problems at all I suggest you follow the system for at least a short time to see what we're all talking about and to understand why the program doesn't do what you'd expect it to do, and what it does do that you might not have expected.

And after all that rambling on, I should mention that long term forecasting is on the YNAB team's long term project list. It's nowhere near the top of the list because YNAB's mission is helping those who need it most, but they do recognize that it could have value for some people. However, what I seem to remember is that it would be a separate tool like the reports are; reports also don't directly contribute to the YNAB method, but they allow us to measure our progress, which provides both motivation and a pat on the back.

Edited 8/12/12 for clarity.

[Hopeful One]

Excellent post Litterbug!