"Emergency fund" versus budgeting ahead? Buffer category?
I have been reading the YNAB book from Jesse Meacham to try to get my focus on my budget back, my spending has been crazy and I am determined to get a handle on YNAB.
I currently have 600 dollars in my "Rainy Day" category and I think I want to try to continue saving 1000 dollars in that category. The YNAB book seems to suggest there may not be a need to an emergency fund when discussing Rule 2. It says you can just assign the dollars to future jobs. Like if I were to lose my job I would have 8 months of expenses.
Do others keep a rainy day category with ~ 1000 dollars or some amount?
Also, I apparently did something and paid my rent early one month before. So now when the 1st of the month happens, YNAB assumes my goal hasn't been reached because I spent twice in rent last month.
I have read people have a buffer category for next months expenses, and I wondered if I should do that? Just create a category for next month's expenses instead of just selecting next month and budgeting there. That makes some more sense to me, and keeps the budgeted in future correct.
I keep $1000 of savings earmarked as "Emergency Fund" and keep a couple of hundred in the "Stuff I Forgot to Budget For" category. I use it as a bit of a slush fund to coverage overages in other categories. May not be "by the book" but it works for me. 🙂
Having savings versus assigning to future jobs is something I am struggling with as well, especially how the "Age of Money" report fits in. I think it comes down to if you have your saving on-budget or as a tracking account. I will probably post a detailed question about it shortly.
I think the point Jesse was making in the book, and that long time YNAB users make here on the forums, is that once you've figured out accounting for all possible true expenses, things that happen are no longer "emergencies" or "rainy days" - they're things you planned for and can handle.
Until you know what those are, and/or until you can save up for each thing individually, an emergency/rainy day fund makes a lot of sense.
Regarding the Next Month Income, there's a not-bug in the new YNAB such that you can spend funds you budgeted for the future without realizing it. The buffer prevents that from happening.
There also is apparently something magical that happens when you can figure out the entire month's budget at one time, but I've not encountered that myself. Then again, I didn't start out in YNAB living paycheck to paycheck, so that may have something to do with it. Budgeting paycheck to paycheck limits one's ability to look at the larger picture, because taking care of the now is so much more important.
Moe Hawke said:
Having savings versus assigning to future jobs is something I am struggling with as well, especially how the "Age of Money" report fits in.
Age of Money only reflects money that is already spent, so how you allocate dollars that haven't been spent yet is immaterial to AOM.
Slate Blue Pilot (2903ac015cdb) said:
The YNAB book seems to suggest there may not be a need to an emergency fund when discussing Rule 2. It says you can just assign the dollars to future jobs. Like if I were to lose my job I would have 8 months of expenses.
Yes and no. Budgeting money in future months 8 months in advance is a bad idea because it's messy and the future months would not resemeble your budget in case of a real emergency. Furthermore when you need to make micro changes to your budget, that's a lot of months you =have to change all at once, and it's a royal pain in the rear.
On the other hand, saving monthly for true expenses helps keep you even so you aren't scrambling to play catch up when something unexpected happens.
Lastly, because your True Expenses are covered, you don't need an emergency fund, but you do need an income replacement fund, because the one thing that saving for True Expenses cannot account for is loss of income. You do this in a single category, not by budgeting ahead, because as I mentioned initially, that budget where you budget ahead won't resemble your budget in case of income loss.