How far out to budget?
I'm relatively new to YNAB, and wondering how far out it is reasonable to budget. I am not living paycheck to paycheck, I could theoretically budget out 6-12 months in advance if I wanted to but I'm not sure how practical that is.
Hi! This is what I recommend with that much starting capital.
Don't budget beyond next month!
1. Fill this month's needs until the end of the month.
2. Make a category called Income for Next Month (INM). Place the amount of your normal income in that category.
3. Make an Income Replacement Category. Fill that with your 6 month expenses money.
4. Look at your True Expenses (annual bills, contingency expenses like maintenance, medical, technology replacement, etc). Fund them to the level that allows stable monthly contributions going forward.
If there's not enough money for all these steps, I would personally decrease my IRF to fully fund the True Expenses. Then, each month, the IRF would be my highest priority for extra money (anything beyond my regular monthly needs/contributions).
Hope that helps!
If I had 6-12 months of expenses in cash, I personally would chose to budget that money into my "Emergency Fund" category, and move it from my checking account to my savings account (and not touch it for any reason except job loss or another dire emergency). I don't see the practicality of budgeting that far in advance. Even budgeting 1-2 months ahead doesn't seem practical to me unless a person's income is variable, or they're on an odd paycheck cycle. I am salaried and get paid regularly every month, so my perspective may be different.
move it from my checking account to my savings account
Once the money is in a savings category, it's protected from other spending (you should be looking at Category Available balances before spending). The only reason to move it to a savings account is for the higher interest earned.
If your income is variable, I believe best practice is to create a deferred income holding category that allows you to budget in smoother, month sized amounts.
An odd paycheck cycle within the month is no issue if you're using the INM buffer category. An odd paycheck cycle that is longer than a month is perfect for a deferred income category.
You are correct in the fact that it's not practical to budget many months into the future. Best practice is to budget next month only with income from this month. This allows you to budget an entire month at a time. The rest goes into savings categories. I have an EF with 6 months of salary. Many call theirs Income Replacement. I also have Vacation, Christmas, Car Replacement, as well as funds set aside for car repair, housing costs, anything else I can think of. After that, the sky's the limit.
Budgeting many months into the future just causes a ripple effect every time a current month category changes (Rule 3) and you might have to modify all future month budgets as a result.