Confused- Is it so bad to budget with money I don't have yet but know I'll receive?
My girlfriend and I budget together on YNAB and this morning we hit point of contention. At the moment I'm the sole earner in the household, and I'm transitioning into a salaried job after being a full-time student. Here's the situation:
-I have a few thousand in savings
-I'm getting paid just enough to cover August rent for completing onboarding training that should hit my account July 31st, so rent will be paid at the start of August, but no other essential expenses
- Although I will be working all through August, my first official paycheck for the month of August will hit on August 31st
-After that, I'll get paid twice a month on the 15th and last day of the month
This morning I let my gf know that I'd set up our August budget and that she should look at it and let me know if I missed anything. She's been using YNAB for years and feels very strongly about it. She got upset that I had budgeted for monthly expenses like rent, water, electricity, car insurance, groceries, etc. without designating where the money was coming from. I told her that I future-dated the paycheck estimates for July 31st and August 31st, and that the budget will green out at the end of the month with plenty of money left over. It will then take us 2-4 pay cycles after that to have next month's essentials ready each month, but we'll get there soon. She said that by budgeting without designating where the money would come from, I was missing the entire point of YNAB. I understand, generally, the benefit of the YNAB philosophy, but this is one weird month where 90% of our expenses are going to go on my credit card and then get paid off in full at the end of the month. I guess I could say in YNAB that the money was coming out of my savings account and then say that my paycheck is going straight back into my savings to replenish it once it hits, but that's not actually what's going to happen- I'm going to put our expenses on my credit card and then pay it off in full, just like I do every month. Is there something I'm missing here? Is there some other way I should approach paying for our monthly expenses when the money won't hit until the last day of the month?
Thanks for the responses. I think I'll suggest budgeting for August based on the amount currently in savings (which I don't honestly think will change much about how the budget is currently set up; it might temporarily eliminate some funded categories like contributions to our washer & dryer purchase fund) as if my savings was going to pay off the credit card at the end of the month rather than my paycheck. Then when the paycheck comes in, we'll deal with the actual balancing of the budget.
Yes, one of the main pillars is to only budget what you have. So, if you don't have the money, you should not budget it. While yes, paycheques should be received, there are always things that can happen where the paycheque is not as much, doesn't come or there is a mixup. So it is always good to know reality.
I see a couple of options one of which you alluded to:
1. Take the money from your savings and budget it out for your expenses. Then, when the paycheque arrives, replenish the savings. It is a great way to use savings as a temporary measure unless you need it for something else at the same time. And savings are often part of an emergency/contingency fund. This scenario would meet that criteria.
2. Do not budget anything, use your credit cards for the month and allow your budget available to go negative. Then, when you receive your paycheque at the end of the month, you can budget based on those figures because they are what actually happened and you need to pay it anyway. Not as pretty because it can be stressful seeing the red but it reflects the reality of what you are doing. Also, the negative amount gives you an idea of how much you have spent and guide decisions throughout the month to prevent overspending.
Yes. It's a big deal.
YNAB is meant to replace your accounts as the place you look to determine if you can afford something. You'll get to a point when the only thing to which you refer is your category balance, knowing that there is either enough padding in your checking account or room on your credit card to make the spending.
If your categories are backed by "hoped for" cash, you can't do this. And even if you stick to your plan perfectly (you won't), there is still a world of difference between looking at your "dining out" category and knowing that right now, you can blow all $300 in it on a fabulous once-in-a-lifetime gourmet meal you've suddenly been invited to, and worrying that if you actually spend all $300 in your plan, you'll come up short in your account for your car payment.
Especially in a time where your money is going to be thin on the ground, your budget needs to be based perfectly in your on-hand cash. In reality, you're going to live this month on your savings and credit card float. Your budget needs to acknowledge this.
GF is right. The reality is you're taking on debt without also having the cash to pay it off immediately (as would happen if purchases were budgeted). When you get more money, just budget for debt reduction at that time.
By entering money before you can spend it, categories are not backed by cash in hand. Even if the budget isn't that tight (meaning the amount of fake money is small compared to total on-budget funds), you're still missing out on the psychological aspect of priority-based spending decisions. If you just buy something because "it'll work out eventually", there's no evaluation of whether that's really important enough to not spend elsewhere or perhaps not even make the purchase at all.
The reality is you are between one and two months BEHIND. You don't seem to realize that, perhaps because you've injected fake money into the budget. Your options are very limited in the case of a larger than expected expense, delay in payroll, or layoff.
Search for "Riding the CC float". Yours is an extreme case since your income is already spoken for before it even arrives. Less severe cases (up to 1 month behind) can't pay the CC bill on the statement closing date, but through budgeted purchases (not additional income) they can pay it by the due date.
Navy Blue Pegasus said:
Take the money from your savings and budget it out for your expenses. Then, when the paycheque arrives, replenish the savings.
As I see it, OP may be too far behind to replenish the savings. The paycheque at the end of August should cover the spending in September.