Budgeting Vs. Forecasting
Good afternoon all,
So I have been reading Jesse's new book "You Need A Budget", I have also been working on my template. Now I am sort of confused, not sure if the definitions are getting jumbled in my head or I am just not making a connection real life and how I am doing things or what.
We are only supposed to budget the money we have, I am on a fixed income and get paid the 3rd of each month. So on that date I have YNAB set to enter my benefit amount, and I have my monthly true expenses set by due date, I have also budgeted certain amount each month to Groceries, Transportation, Cell Phone, Medical, several Emergency funds and that seems to work and make sense. So do my set asides for things that are upcoming, YNAB subscription, Mircosoft Office and Sam'e Clubs, to name a few. All are a know amount, although personally I round up to at least the next dollar to make book keeping easier, to build a slush fund in case of price rises in the middle of the subscription term.
Where is gets confusing to me is a couple of mid and long term purchases. A DSLR camera and building a new computer. The camera is about 6 months in the future while the computer is 32-48 months down the road, just built one that is actually over built. I have no idea what the camera is going to cost, the one I am thinking of right now, there is a newer model coming out in the next month or so that will effect the demand and price, what I did when I started saving for it was take the price and add 25% for extra lens, straps, batteries and backpack. For the computer I took the $1500 that my current one cost me to build and added 35% to that.
Since I have no idea what the future cost will be how am I not forecasting?
Thank you for any help you can provide.
I don't know how much my natural gas bill is going to be every month, but I allocate $80 when I do my monthly budgeting. That's not forecasting, it's making a plan of what to do with $80 of the paycheck that I have received. When you are saving up for something over a period of time, it's really the same thing. As you get closer to the actual purchase date, you are able to do more research and figure out what the exact figure is, but each month, you set aside $X of money that already exists in your accounts for a specific purpose - that's allocation not forecasting.
The way that I got to understand the difference in forecasting versus budgeting was to think about what I had at this exact moment in my account. That amount is what I distributed into the categories that were most important at that specific time.
Anything that might be coming in the future, even if it was a couple days away, isn't considered.
Budgeting is dealing with the here and now. Forecasting is projecting.
Planning ahead is what jenmas was suggesting and that is not forecasting.