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.

thoughts?

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  • 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! 

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  • 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.

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      • Scott
      • In the beginning the budget was created. This has made many people very angry and has widely been regarded as a bad move
      • Scottgoeshiking
      • 2 wk ago
      • Reported - view

      altmegan I'd take a slightly more nuanced approach with that much cash.

      1. Keep the current month's expenses in a liquid account - checking.
      2. Keep the next month's expenses in a near-liquid account that you can access quickly if needed - savings.
      3. Anything beyond that is generally safe to put into a longer term investment vehicle like a MMA or CD. Laddered CDs will give a much greater return than most savings accounts, but these days an MMA can compete with many CDs. All this depends on your needs though and the time horizon for when you plan to spend the money. 6-12 months in a savings account though could probably be put to better use.

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  • altmegan said:
    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. 

    Read this: https://www.youneedabudget.com/the-relationship-between-your-budget-your-accounts-its-complicated/#:~:text=Your%20budget%20and%20your%20bank,assigning%20each%20to%20a%20category).

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      • altmegan
      • altmegan
      • 2 wk ago
      • Reported - view

      Move Light Sound Life I've read that article before and I understand the relationship between the budget and the accounts.  I know that a savings category is separate from a savings account.  And I understand that I have to look at available balances before spending.  OP asked for thoughts on budgeting 6-12 months in advance, so I just shared what I would do: give that money a job (emergency fund category) and move most, if not all, of it from my checking to savings.  6-12 months of expenses is a large amount, too large IMO to keep in a checking account especially if you don't intend to spend that money for a long period of time.  And, yes, the higher interest earned is one of the reasons I would move that money from checking to savings (or some other easily accessible account that earns interest to at least keep up with inflation).

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  • altmegan said:
    person's income is variable, or they're on an odd paycheck cycle

     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. 

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  • 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.

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  • "Far out" might have been cool in the 70s but it doesn't work too well in YNAB. 😉

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