WAM vs. averaging spending...

I'm about five months into using YNAB (and it's been a lifesaver!!!) and I'm just curious about how other people handle/use WAMing.  We budget for all our fixed expenses, sinking funds, etc. and known irregular expenses when I get paid, and then roughly/vaguely assign the rest of the dollars based on what we think is going to happen and general past behavior.  When things go awry, we WAM between the discretionary categories, and that works fine for us right now. 

I'm curious if other folks rely on that sort of method or if they gradually start to allocate based on average category spending over time as they get more data in the system.  I'd expect averages won't start to be reliable til we've been doing this for a year.

Do you see benefits/drawbacks to either approach? What do you do?

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  • If you have the money to do it, allocate based on your current averages even knowing they aren't accurate. Leave the money in that category for next month's expenses and it should even out over several months time (when you'll have more accurate averages anyway), though if you have a shortfall you can always move that "extra" into the new hole.

    It's all about what you prioritize. When "things go awry" do you mean unexpected bills, or overspending in your discretionaries? I think it's fine to WAM between discretionaries if your priorities are regularly shifting, but if you're frequently running into surprise costs, consider socking more money into a generic "emergency" fund. It might just be that you have more true expenses than you realized (an aging car, poorly upkept house, etc.)

    I've only been using YNAB for two weeks, but I can't wait to get more data!

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  • Oh I mean more "a couple more cabs than we thought we'd take this month, so maybe we don't go to the movies" or "had to replenish some toiletries, gotta move that out of 'food'."  Nothing really in an emergency fund type situation, though medical copays is definitely something I need to start socking away more cash for proactively as we did get hit with a ton of surprises there in the last couple months. I don't really have money left over at the end of the month because of the WAMming and trying to pay down existing debt a little faster with whatever $ I do have. 

     

    And yeah, the data is awesome and super enlightening!

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  • On seasonally varying things (utilities, petrol, kids activities, etc.), I budget the average but cover any overspending. After a "cycle", the monthly demand is very consistent.

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  • Regarding WAMming, it's a totally separate concept from the amount you initially budget (average, worst case, or best guess). The short answer is ALWAYS cover overspending. This should always pull from a lower priority category. 

    (Pro tip: reallocate in advance of overspending, or at the very least pick the category to take the hit. If you cannot identify a lower priority, it's much easier to skip whatever purchase you're contemplating.)

    FWIW, choosing your CC payment category as that lower priority means you intend to pay it off later. Explicit debt increase.

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  • dakinemaui said:
    (Pro tip: reallocate in advance of overspending, or at the very least pick the category to take the hit. If you cannot identify a lower priority, it's much easier to skip whatever purchase you're contemplating.)

     Absolutely! I couldn't find the words. Calming down the WAM and getting better averages is more that your behavior changes rather than external circumstances changing. 

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