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Need a budget for your variable income? We, at YNAB, believe it's possible to budget successful no matter when you get paid. | YNAB
13 Oct 2016

Mastering A Variable Income: Part 3 – Beware the Dangers of Forecasting

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Blog Series 3/8

by Todd Curtis

We can’t change the fact that you don’t know exactly when or how much you will get paid, but we can teach you to be in total control of your money, and stop stressing about it! This 9-part series will teach you exactly how to budget successfully and get ahead, variable income and all.

Ok. You’ve committed to doing things a little bit differently, and being the boss of your money. You have a handle on what your immediate obligations are. You have a better sense of what you can afford–and if you can’t afford those immediate obligations, you have a sense of what adjustments you’ll need to make.

However, it still gets pretty fuzzy as you attempt to look further down the road. What will you be able to afford in a month? Or two or six? And if you are a small business owner or a freelancer, you still don’t know what investments you can afford to make in growing your income.

This is exactly where people with variable income make a critical mistake. You decide to start forecasting. You decide to start guessing how much money might come in, and “budgeting” with pretend numbers. But it’s a fool’s errand. There’s not a lot of control in pretend numbers. Don’t do it.

That’s a hard no. A little too blunt? Maybe, but we really want to drive this home. Forecasting is not budgeting, and it introduces a lot of additional uncertainty.

It’s ironic because the impulse to forecast is built around trying to resolve uncertainty. You‘ve got variable income, you’re not sure how much is coming or when. That’s some baseline uncertainty, right? And resolving that by budgeting with money you guess you’ll have is appealing. You’re trying to think ahead. You’re planning. It’s something, right?

Wrong.

Forecasting–budgeting with money you don’t have yet, just to see what your bank balance might be three months down the road–puts you in a worse position. Here are the dangers:

You Lose Clarity.

When you budget only the money you have and ask yourself, “Can I afford this?”, you get a real answer. Yes. No. Not yet. That’s what you need to know. When you forecast, when you guess about your future income, the answer turns into, “I think so. Maybe.” That doesn’t feel good and it doesn’t help you. And you are very likely to get it wrong. It’s not much better than having no budget at all.

You Miss Out On The Power Of Scarcity.

Working only with the money you already have, you’ll experience a moment when you wish there was more of it. Don’t turn away! This is a powerful opportunity. Notice the creative energy that is unleashed when you have to really think about how to make more money (instead of just hoping it will arrive). Notice how much better it makes you at prioritizing.

You Reinforce The Illusion Of Regular Expenses.

Along with guessing your income, in order to forecast, you’ve got to make some assumptions about your spending. Those assumptions are almost always wrong.

There’s no such thing as a “regular month.” Sure, things like your rent payment don’t change. But other expenses come and go, rise and fall. If you assume each of the next few months will be just like this one, you won’t prepare effectively for what might actually happen.

Your takeaway this week is a don’t-do. So would should you do? Budget to zero with the money you have on hand. If you’ve entered future income in your budget (you know, by faking the date…), yank it out. See what it is like to budget without it.

Notice the feeling of scarcity. And then don’t run away. Instead, arrange your money based on the priorities you have right now. And that’s your next a-ha moment!

Next week, we’ll talk about planning for larger, less frequent expenses, and setting yourself up for the future.

Say Goodbye to Crazytown: Mastering Your Variable Income Once & For All Series

Mastering A Variable Income: Part 1 – You Can...

September 29, 2016 | by Todd Curtis

Mastering A Variable Income: Part 2 – How To...

October 6, 2016 | by Todd Curtis

Mastering A Variable Income: Part 4 – Embrace...

October 20, 2016 | by Todd Curtis

Mastering A Variable Income: Part 5 – Learn To...

November 4, 2016 | by Todd Curtis

Mastering A Variable Income: Part 6 – Change...

November 10, 2016 | by Todd Curtis

Mastering A Variable Income: Part 7 – The...

November 17, 2016 | by Todd Curtis

Mastering A Variable Income: Part 8 – No More...

December 1, 2016 | by Todd Curtis

Your Next Step

Remember, budgeting is not restrictive. You won’t be spending less, you’ll be spending right. You can do this! Today. Right now. What do you have to lose? Except all that debt and stress. (Ok, so kind of a lot.)

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