YNAB You Need A Budget

[blarg]

That's what budgeting a year out does for me: it allows me to see if I am on schedule for planned expenses or savings goals and gives me time to make adjustments along the way if I have something unexpected that crops up ....

Ok, I understand what the goal is. Congrats on getting out from under all that debt!

Personally, I use a calculator and notes to accomplish this. For example, one of my savings goals is a house deposit. I know when I want to have it, and I know how much I want to have. I take that amount, I divide by the number of months between now and then, and I have my budgeting figure. I'll get interest on it, but I consider that gravy, and more is better, so why not lowball it? I then put the monthly figure in a note on the category, so I know how much I should be aiming for. I can then track month to month how well I'm progressing towards the goal, and if I look back over the last 6 months or so in that category, I can see how well I've done sticking to it. If I can't stick to it in one month, I try to make up in the next.

Also, with the house deposit, I've just rounded that figure off so that the amount I'm putting in that category plus rent is the same as my payments will be when I get onto the actual mortgage, meaning I shouldn't even know the difference.

My way is certainly not the only way either, and I'm glad that you took the time to explain what you get from doing a yearly budget. I could see how you'd get a bit more feedback from your way, but the extra work just wouldn't be worth it to me.

[malisab]

I've been thinking of this thread of Karen's recently (miss you Karen, haven't seen you around).

As I approach my year anniversary with YNAB (sort of) and it's summer where I'm going to be living on the money I set aside during the year for the time I don't get a paycheck, I'm thinking and planning of what I want to do the same and what I want to do differently my next 'fiscal'/school year.

First, thanks to Karen for the original post and all who posted here. What this thread says to me, at this point in my journey, is that there are Soooo many different places to be that there's not one right answer as to whether to look ahead and how. This is evidenced by what Terry wrote too.

Let me first say that I whole-heartedly support YNAB's methodology! .. especially if you are just starting out and living paycheck to paycheck. No useful purpose is served in budgeting for funds that you do not yet have. What would happen if you budgeted for a full month and paid a bill only to discover that you did not have the funds in the bank and over-drafted?

Now, having said that, things change somewhat when you achieve a full buffer. Also, if you are salaried and you don't foresee your salary going up in the near future, there is absolutely nothing wrong with budgeting out several months or even a year ahead. My budget for the entire 2010 year is already in place. For me, it is a projected budget based upon my expected earnings and needs that I expect to have over the coming year. Of course, anything can happen, and often does. The car needs repair, the water heater needs replacing ... unexpected things. In those cases, money is moved back into the budget from emergency savings .... or money is moved from one budget account with a surplus to another with a deficit. My budget is a "living organism" that I must nurture throughout the year.

My big issue is not income (although it was this past year when the long awaited salary reduction hit) but expenses. I can put the expected income in and it won't change. I'm buffered, so I can budget for a month at a time no problem. But if I don't spend based on my category balances or do so within reason to be able to whack -a-mole with appropriate categories...all bets are off.

I'll reflect more on my personal situation in my journal. I mostly wanted to revive this to thank those who posted and acknowledge that it stuck in my head enough for me to dredge it up months later.

Thanks.

[MALMomma]

Glad this thread could help you out, Malisa! ((hugs))

(Been busy, but I plan to catch up here this week!)

[VelvetHamster]

Great post and comments. Thanks!

[Carl Fredricksen]

I should have learned the forecasting lesson from my Microsoft Money days. I had my paycheck scheduled and all my regular expenses scheduled. The forcasting graph always showed a lovely stair step of increasing net worth. I would spent based on that graph, so my actual net worth growth was less like a stair step and more like walking up the down escalator.

That was always my problem with MS Money also. I thought the forecast graph was a good tool, but I would spend based on future income. I have been running YNAB and Money side by side for a month now, but have committed to stop using Money on July 1, and make a break with the past and the old ways I have been doing things. I don't have a need to track taxes and a lot of the other micro-managing that Money did for me in the past anymore. YNAB will serve us just fine, as long as I get the buffer filled up, which should be next month.

To OP, thanks for the great post for us newbs.

[MALMomma]

Very welcome!

Carl, were you able to stop Money on July 1 as planned?

[stephaniesherie]

I think a lot of people don't understand the reasoning behind only entering money you physically have. It's to keep you connected emotionally to your spending. If you're a week into the month and you realise, gee, I only have enough for rent no food at all, it demonstrates very clearly to you how close you are to the precipice. If you were to lose your job that week, let's say the company disappears like Enron, how would you eat? What would you do? If you had entered all your cheques for the month first, you would still see a huge chunk of money sitting there and could think to yourself "gee, things aren't so bad." That's not the truth though. You don't have that money in the bank. You may at some point, but you don't have it now, so you CAN'T SPEND IT. Period.

So much of this is a mind game to show yourself what the reality is. Sure, if you do receive all of those pay cheques, it doesn't matter in theory when you enter them into YNAB. It's the same amount of money, right? Well, the value here is to show you that while it may be the same amount of money, you're operating on a RAZOR thin cushion, and any negative income deviation would send you straight into debt. So, no, it's not the same. Only spend money you have.

(And if you want to forecast, fine, but do a save as and then forecast in a separate file. You shouldn't be budgeting money you don't have in your day to day budget.)

This *is* the truth of my current financial existence. Thank you for the wisdom.

New plan - or, I should say, a modified plan. Get a buffer in place. Then attack debt

Okay - thanks for this tip. I've been wondering ...should I start putting extra payments on things? Should I start cramming savings? But, I like how you said to start with the buffer. That's they YNAB way, right?

[MALMomma]

Whatever you can, stuff it in the buffer. Once you have that buffer in place, you feel SO good. It has a calming effect on you on one hand (secure feeling about your finances), but it revs you up on the other (look what I did! I can do THAT again for "insert whatever you want to save for here".)

We've had a buffer in place for... hmm... nearly a year, I believe. It's made a huge difference. Our debt is gone, we're saving for a move, prepping our house for sale, and we're not cringing when a bill arrives. AMAZING feeling and it's all because of YNAB.

[stephaniesherie]

Where you still budgeting savings while creating your buffer?

[MALMomma]

Nope. Everything went to the buffer.

[Turf_Hacker]

Where you still budgeting savings while creating your buffer?

Not sure what you mean by savings, but I would advise funding your rainy day categories. Otherwise, when the rain comes it will knock your budget off balance. That's also the purpose behind the mini emergency fund, just enough to keep an unexpected expense from causing you to pull out a credit card.

[malisab]

Where you still budgeting savings while creating your buffer?

Not sure what you mean by savings, but I would advise funding your rainy day categories. Otherwise, when the rain comes it will knock your budget off balance. That's also the purpose behind the mini emergency fund, just enough to keep an unexpected expense from causing you to pull out a credit card.

I was just lifting this quote and asking stephanie in her journal the same thing.

We have spent a whole lot of time together. (ETA: Meaning Turf_Hacker and I.)

[stephaniesherie]

Thanks!

Yes, I just added in my rainy day categories! Thanks!