Age of Money
Rule Four teaches us to "age our money". This is, for me, the most powerful concept YNAB has taught me over the years. Achieving an age greater than fourteen-ish days was something I never saw before using YNAB.
Now, after using and learning the method for the past three years we have achieved something wonderful. This past October we reached an age of money of 181 days! After much shopping, activities, and illness during November it has dropped slightly, but we're climbing once again. Talk about peace if mind. Wow!
What's your age of money right now?
The concept itself is a natural progression of budgeting according to the first 3 rules, but I'm not a fan of the Age of Money metric. To me the number is nothing more than a curiosity. Since it is based on your
budgetincome and spending, and people do things differently, the numbers aren't universally comparable. As a result they do not have a universal meaning.
The number is affected by too many variables, including:
Spending using credit cards
Frequency of income events
Frequency of spending events
Lumpy irregular spending and its magnitude
Congratulations! That sounds like quite an accomplishment -- that's 6 months! 🏆
I also wanted to add that we really want to hear feedback about the Age of Money! We take each email and push that specific feedback through to a system that compiles them with similar feedback and tracks the frequency. We don't gather that from the forums, though, so if you have suggestions, please email us at [email protected] !
Michael Wow, congratulations! 💥
Some of the side discussion reminded me of this blog post that I thought you or others may be interested in. Age of Money is, more than anything else, a visualization. (Which is why I am so excited about the graph in the mobile apps). It can go up, go down, and level off.
Like anything else, it isn't "useful" in a vacuum. But in as much as it shows money sitting in your accounts, when perhaps it used to fly out faster than you could count it, it sure is.
In the end, as others point out because everyone is different, your total budget is anyone's best metric. The money actually sitting in your categories can tell you, are you prepared? Are your paychecks sitting around longer? Are you able to pursue what you love? Are you meeting goals?
So glad you're finding success and peace of mind, Michael !
I have absolutely no disagreement that the Rule 2 scenario you describe is accurate. Save up to buy a car with cash, AOM goes up. Buy the car, AOM goes down. One hundred percent accurate. It's happened in my budget.
I think the reason I posted, though, is this: I find it useful when that happens. It tells me a story about my budget and my use of my money.
I think it's useful too, but I don't think that most of the documentation regarding the Age of Money number does a good job in explaining it. And certainly not the concise, yet inaccurate, tooltip.
It's certainly a solid graph that should be part of the charts, graphs and reports. I just disagree that we should be using it as a measuring stick for one of the rules. The rule is actionable, but the measuring stick is passive. The old Rule 4 was actionable and so was the measuring stick.
As for the OP, 180+ days is certainly a heck of an accomplishment, assuming he did it through savings and not by deferring the impact of cash-based spending. 👍
I wonder what my AOM would be if I didn't do the following:
- Churn 401k contributions as wash transactions (That's 4-5 income and "spending" transactions per month). - increases frequency of spending
- Churn HSA contributions as wash transactions (That's 2-3 income and "spending" transactions per month. - increases frequency of spending
- Pay for medical expenses via credit credit card with HSA reimbursement instead of using the HSA debit card - increases frequency of spending transactions
- Got a loan for my car instead of paying in cash - takes a big up-front hit rather than a smaller
- Use a credit card to make most purchases - pushes off the spending transaction to a single credit card payment... this is the only one that actually increases AOM.
- Make extra principle payments on monthly mortgage payments - increases amount of spending transaction
- Send money off to 2 Roth IRAs (4-6 transactions) - increases number of spending transactions and money leaving budget
- Send money off to a brokerage account monthly - increases number of spending transactions and money leaving budget
- Consider (some) gift card purchases spent at time of purchase rather than as a transfer that remains on budget - increases number of spending transactions and money leaving budget
As far as "too much cash" versus give every dollar a job, I don't think they're at odds. Once every category is maxed, the job of extra cash for me is to invest it. So, that's its job. It is then no longer a concern of my budget.
Every category is funded at the exact same amount every month (except kids allowances which vary based on Sundays in the month). Even income replacement gets a small amount every month to account for inflation and minor lifestyle creep, and interest from our bank accounts more than covers that monthly amount. We go on vacations, appliances need to be replaced, cars get replaced, the kids have bat mitzvahs in less than 5 years.
And the dollars that really don't have a job are sent off to Vanguard.
It's just that over time, the total in the budget just keeps growing and growing. The money in the budget is now at approximately 5.5 months base salary or roughly 85% of one year take home pay (excluding bonuses). This year alone it's grown by more than 20%.
Even though every dollar still in the budget has a job, it just seems excessive in that regard.
My age of money was high due to keeping savings and true expenses on budget, however I did a fresh start this year and it is back down again but ticking up daily and the money amount has not changed much. I guess in 6 months I will be back up around 180 days. I assume AOM is based on past spending and since I did a fresh start there is nothing in the history to base the calculation on to make it 180 from the start.
Panzer, retiring at age of 60, two of us at work, both 60 at approx same time ( 18 months) and both wanting to retire, question he keeps asking is when do you stop saving and start spending, only way is, you need to know your departure date . Or go by the saying " Thrifty to Sixty, Spend to END"
I don't get too worked up about AOM as Current Account is best interest, just max out on these, two single accounts and a joint account, once these are full move to shares, cash ISA, Bonds. Sad day when the current account is best for instant access
I've really enjoyed reading all the responses to this post. I seem to have stirred up quite a discussion! 😝
I've decided that, while I do enjoy the visual element of AoM, what I'd truly enjoy having built into YNAB is perhaps a "Goals Met" counter. Something that intelligently shows me how often I meet my goals and how many goals I've met. Haven't given it much thought but I'd enjoy the feature, I think.
Update: AoM is down to 76 days. 👍
Is there any way to see the velocity of inflow vs outflow? This is part of what I imagine AOM shows.
I am brand new to YNAB so don't have the history of usage that many others here have. I am also starting with a 45 day gap in inflows. Now that I am at the end of March (2 weeks using YNAB) my AOM is 3 days. To be expected. I still have several double payments to fit into the budget over the next 3 months to get everything caught up. My inflow rate is sufficient to do this but my AOM should not change too much. Once caught up, I expect my AOM to rise as I am able to rebuild E-Funds, Vacation funds, other saving goals as well as my quarterly/yearly expense funds.
As a software architect/developer, I've written systems in the past that looked at both acceleration and velocity of X vs Y. My situation right now, I have a large positive acceleration in bill spending that will hit ZERO in a few months then go into a negative acceleration until everything is balanced out. My velocity of spending will come down over the next several months until I am steady at just paying my usual monthly amounts.
With the YNAB system, I see velocity being best likened to a cruise control on the car. Acceleration is the change in velocity to get to cruising speed and once at cruising speed the acceleration should be very close to zero. However, in a financial system, acceleration would also be calculated by comparing goals and spending. Right now, my goals are set for the "normal" month yet I am spending twice my goals in several categories: a high acceleration.
Hopefully, I am making sense.
I think another way to put it is, acceleration is the cange in velocity in a short (30 days?) period of time while velocity would be the average speed over a longer period of time (6-12 months?)