Age Of Money Questions

I find the AOM concept surprisingly hard to grasp. It sounds deceptively simple, until it isn't.  I have a couple of questions. 

 

I'm going to start a new budget sheet in January. I only started YNAB in September,  so I'm waiting until January to give me a little more time to get used to the software before I restart. Also because of the neatness of starting in January.

 

When I start a new budget sheet in January, wont my AOM essentially reset, and take a few months to truly reflect what's it's currently at (47 days, somehow)? Wint the budget be acting as if I got all of my money on 1st January? 

 

Also, if someone was living exactly paycheck to paycheck, wouldnt thier AOM still hit 30 days each month, only to reset each time they got paid? If you get paid monthly, then the day before payday your money is inherently 30 days old. (Or 31, or 28. Or 29!) If you then ran out of money, then got paid, then spent it, your AOM is only 1 day old. Right?

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  • Most long term users ignore AOM because it is fundamentally flawed and hence a poor metric. The worst thing is it is often misinterpreted as being a forward looking indicator of how long your money will last. Instead, it's a very limited backward looking indicator showing how old the money you've just spent is (I think it does the last 10 transactions). It's also fairly easy to game if like me the majority of your spending is done on PIF credit cards.

    I wouldn't waste any energy on it.

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      • Moohouse
      • Software developer
      • Moohouse
      • 3 mths ago
      • 1
      • Reported - view

      monkeyhanger I think it's kind of silly but I think it's kind of funny to track regardless. Just reached 400, which fits with the money I have on hand. If I didn't plan to spend the money soon I wouldn't keep them on budget at all, and they wouldn't affect AOM.

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  • Yes, AOM will reset and all your money will be "earned" January 1st, if that's your reset date. But unless you spend all your money on new year's eve, AOM should build back up to previous levels by about the end of February.

    Let's say you have one paycheck monthly, 1st of the month.

    If by month's end, you have some money left, and over the next 10 transactions next month spend less than the money left from last month, then you could see AOM 30+.

    AOM is averaged, so you would need to make 10 really tiny transactions by month's end if you want to see 30+ without having any savings. And what's the point if you know it won't last past the first day or week of next month?

    If you start next month with $0 and then get paid, and make enough transactions, yes, AOM should be 1.

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  • You can have an AoM of 200 and still be paycheck to paycheck. That just means you need your check for purchases before you are paid again. The older money you might have could be reserved for non-monthly expenses that are yet to be paid, and you don't want to use them for tomorrow's Groceries.

    In fact, it may be instructional to know that you could have that 200 day AoM and be flat broke, having spent your last dollar.

    It's a backwards-looking spending metric, not a forward-looking budget or planning metric. It's presence on the budget screen makes absolutely no sense to me beyond a marketing gimmick.

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  • Mx Emmin said:
    If you then ran out of money, then got paid, then spent it, your AOM is only 1 day old. Right?

    Ignoring the averaging, yes. Certainly the age of that recent transaction is 1 day (maybe even 0 days).

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      • dakinemaui
      • dakinemaui
      • 3 mths ago
      • Reported - view

      Moohouse Quite possibly, but here's my thinking: traditionally, people put money away in an entirely separate accounts for Emergency Fund, Property Tax, etc. This money is off-limits for normal, monthly expenses, so they have to time their Rent payment, for example, to be made after a paycheck arrives. The fact they wait on a paycheck before they pay that bill is paycheck-to-paycheck to me.

      The equivalent in YNAB simply uses categories to identify those off-limits funds, but they're still off-limits. They still wait for the paycheck to arrive, otherwise the Rent category turns red/overspent.

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      • Moohouse
      • Software developer
      • Moohouse
      • 3 mths ago
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      dakinemaui I would guess that most people don't have that kind of money saved up for anything, and go into debt to pay very predictable but large recurring expenses like property tax. Or a broken home appliance. But then again, most people don't follow a budget at all.

      The only way the rent category would turn red would be if you earn way too little, are paid multiple times a month (so it's funded by the next paycheck), or you have a really weird way of prioritizing expenses.

      If you get evicted instead of touching next year's vacation savings or other savings to cover rent, you should maybe reread the manual or adjust your priorities?

      Just because you budget every paycheck doesn't mean you live paycheck to paycheck. I just don't like the tedium of micro budgeting that much, so I would only budget once even if I had daily paychecks.

      I guess I'll agree to disagree on the paycheck to paycheck definition.

      Like 1
      • dakinemaui
      • dakinemaui
      • 3 mths ago
      • 1
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      Moohouse Fair enough; I could certainly be swayed either direction, especially with regard to the EF. It sounded like OPs question was more fundamental in nature anyway.

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