When to budget for future months?
Hi all - I am having a hard time understanding this concept.
When exactly should I begin budgeting for the next month? Should I have all my categories fully funded? Or if as long as I have covered my actual expenses, can I move on? Any insight would be much appreciated!
You'll get a lot of different answers. I've been using YNAB for 8 months now. Not everyone using YNAB budgets into the future because there's a bug, they like to call Stealing From The Future, SFTF. It comes up in ways like explained here: https://support.youneedabudget.com/t/x1slvl/moving-money-in-past-month-causes-sftf Basically, you get no notice that anything is out of whack and then when you move on to the future month, you're TBB is negative in the future month. It's irritating. So, after some people have the current month fully funded, they will place any remaining money in a category in the current month called something like Next Month's Income. Then when the next month comes, they move money from that category to fund that month. Then others will just fully fund as far into the future as they can. I'm in the middle. I'm funding my monthly expenses (mortgage, electric, heating gas, life insurance. medical payments, dental payments) and my semi-annual or annual expenses (license plates, car insurance, vacation) as far into the future as I can. However, weekly expenses, like car gas, food, kids allowance, laundry, pet food) I don't budget into the future. I have budget those in the current month only and have a category to hold money to cover those future expenses. It's been working for me, except for the occasional SFTF issues.Reply
Lately I've been budgeting for a future month on the last day of the prior month. That's soon enough, and it eliminates rework for my process. I will only technically have budgeted for a future month for less than 24 hours at a time, typically less than 12 hours because I want to wait until I've done all the spending I'm going to do in the prior month.Reply
On June 22 I will receive my last June paycheck. I will then take all of my June income and use it to budget for July. I will have a few hundred left over. I will put that in a holding category. At the end of July I will sweep some categories like Dining Out, Groceries, Fuel, and a few others into the holding category. Monthly interest that comes in at the end of the month will get tossed in the holding category as well. Then using a percentage formula I will divide that money in the holding category between charitable giving, kitchen remodel, taxable investing, income replacement, and "thing that I am saving up for" (currently getting a canvas stretched for hanging in the guest room). I never budget more than one month into the future.Reply
If stealing from the future wasn't a thing, you would do it after this month's budget entries are completed. A lot of people still do that regardless of SFTF because they've learned to work around that. (One common way is to leave $1 in TBB. Assuming no cash overspending, that guarantees the future TBB is non-negative, so no SFTF.)
Others queue up funds throughout the month in a holding category and then budget the entirety of the month in one go when they've gotten it all (typically just before the end of the month). This avoids the need to repeatedly budget piece-meal with paycheck-sized amounts (typically these users have multiple income events in a month), and conveniently it prevents SFTF as well. The fact you're paid bi-weekly (or weekly or even random days depending on shift work) doesn't matter, so it's a huge simplification to the process.
However, not everyone is in a position to do the latter approach when they start. If you need some of the money you receive in July in July's budget (e.g., for expenses in the latter part of the month), this approach won't work. Most would say, however, that it's worth working toward because of the additional clarity as well as the simple convenience of one-click to fill out the month in its entirety.Reply
FWIW, you don't have to budget into next month at all. In fact, it's more efficient if you don't as it keeps your financial plan all on a single page with no flipping back and forth. Funds carryover within a category, so an expense occurring on the 1st of next month can be handled by budgeting to that category anytime in the current month. That money will be there waiting to be used when next month rolls around.Reply
I just started a few weeks ago with this. I have enough funds to budget a few months ahead, which I started doing, but decided to only go one month ahead for now. It seems easier to deal with. I have trouble thinking too far ahead anyway. I set up a category for the extra funds to budget later.Reply
Personally, I like to budget one month ahead with my first paycheck (since I'm payed biweekly). My second paycheck covers the remaining "fun" categories and the rest goes into my emergency funds. Any extra income I put into things like my vacation fund or shopping fund.
When I first started using YNAB, I tried budgeting as far into the future as possible. It's nice to know how far your money will stretch, but I like being able to see how much money I can contribute to savings each month. By only budgeting the next month, I feel secure while also seeing the progress of my savings. Play around with it! There's no right or wrong way to do it, as long as all your money is budgeted somewhere!Reply
In YNAB, I budget for next month toward the end of this month. Usually during the last week. I could budget out farther but I don't like to deal with stealing from the future (yes, I know the work arounds). Basically I budget for, say, July during the last week in June. I usually budget for what I plan to spend during June. For some categories that deal with irregular expenses I build up a balance in them (auto repair, for example).
Once I have budgeted for June, I take the money left over and put it in a holding category. That way, I can't just willy nilly spend it unless I think about it carefully. That is money I expect to spend later (not in June). Then in the last week in June I take the money in that holding category (income received during June goes into that holding category) and any other money that I didn't spend during June (money that I had allocated to my budget but didn't spend) and then I budget that money for July.
Now -- in real life -- I find it important to have a framework for the year for how much money I plan to spend. So - outside of YNAB - I do a forecasting budget that I do in Excel. At the end of each month I adjust that based upon what I spent that months and based upon any unusual events, etc.Reply