Estimating future budget situation

Hello,

how do you evaluate whether you have room in your budget to take on another expense in a future, different situation? 

To explain further. At the moment, I work and my husband is at home. We adjusted our spending (cut some costs) so we still live within our means of the one income. After the summer, our eldest child will start school and my husband will return to work. This will bring changes such as a drop in daycare cost, rise in income, start of school expenses. I can estimate all of these changes. But also, we will probably need a second car for my husband to drive to work. In the old days, using a spreadsheet, I would "simulate" the future situation to determine what kind of car we could afford. How do I do this using YNAB? On a side note, we have been using YNAB since december 2017 so the averages are not yet reliable. 

Any suggestions?

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  • As a zero based budget system, forecasting is not YNAB's strength.  YNAB excels at monitoring what I spend and helping me decide my priorities.  Early in my use of YNAB, I found that I had a poor understanding of both my required expenses and my own priorities.  To avoid overspending, I would make multiple adjustments during the month, taking money from categories that had it to fund categories that needed it.  This process of many small decisions elucidated my real priorities, which at first didn't look a lot like what I *thought* my priorities were when I budgeted the month!

    Over time, as my understanding of my required expenses and priorities improved, my budget became more stable.  It was still not very helpful for projections, but that wasn't really its purpose.  So . . . I had a car.  It was new a month before I started using YNAB.  Sooner or later, I'd have to replace it.  So I estimated how long I'd use the car (10 years), estimated what replacing it would cost, set up a Car Replacement category, and started putting budget money into that category.

    9 years and 11 months after I bought that car, I replaced it.  I could have made the car last longer, but my daughter needed a functional car and did not have the financial base to acquire one; so I replaced my car a month earlier than planned, and 2 or 3 years earlier than necessary, in order to give my old car to my daughter.

    The balance of my Car Replacement category became my budget when shopping for a new car.  Having a hard number cap on my shopping budget made me a better less bad negotiator than I otherwise would have been.  I walked out of the dealer with a new car for $24.50 less than the amount I had budgeted.

    This is a long winded way of saying, YNAB won't help you decide what kind of car to get.  You will need to look at what you want, look at how much you think it will cost, look at how much you have for a down payment, look at how much you are willing to add to your budget in car payments, look at how long a loan would last with those car payments, and make the best value judgment you can about what your priorities are.  Do you want to have $800 car payments in your budget for 6 years?  Or could you live with a less expensive car and $400 car payments for 6 years, or $800 car payments for 3 years?  One size does not fit all. 

    My answer was, I don't want a car payment at all.  Absent the unforeseen (e.g., an uninsured motorist running a red light to T-bone my car and total it), my plan was to simply not buy a car until I could pay for it.   That answer will not suit everyone.

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  • I was using YNAB when I bought my current car and financed a portion of the purchase, then paid it off in 14 months rather than 48 months.  I describe my planning process for figuring out how much I could afford or was willing to take on in my monthly budget in this post linked here.

    Since you are familiar with spreadsheet programs, I would encourage you to run your planning or forecast numbers in a spread sheet and not try to use your YNAB budget for that purpose. You don't want to mess up your budget with a bunch of fuzzy future numbers.  As Patzer points out, YNAB really does not bend itself into a good forecasting tool.

    I am debt free and after being exposed to the wisdom of YNABers and frugal bloggers for 3+ years, I fear I am now pretty much completely debt averse -- something that became painfully apparent to me with my recent car purchase, financing, and expedited payoff -- and I've turned into a long-term planner. I am actively saving for a cash purchase of my next car and expect to have enough funds in place to buy a comparable replacement car as early as  2022, although I hope  my car will last for years beyond 2022 and I won't have to use those funds until much later, at which point I may be able to afford an even better car, instead of a 4- or 5-year old used car maybe a 2- or 1-year old used car.

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  • It's interesting to read your stories. Thanks for sharing those. 

    We do have some money set aside to cover the purchase price of the car. Like you, we don't like debt. We were raised with the idea that you should only get a loan to buy a house, nothing else. I was thinking about the regular costs on a car like insurance, road tax, fuel and maintenance. The choice of car will affect the height of those costs and thus the monthly car cost for using it. In that way, it is similar to determine what kind of monthly car payment we could be OK with. 

    We do have better understanding of our expenses by using YNAB, especially the miscellaneous got more transparent. So it is now a more accurate representation of "now". I think I will use this information as basis to do some calculations in a spreadsheet, as suggested.  

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    • Hi Carolina Louise !

      I believe the users above are steering you in a good direction! YNAB isn't built for forecasting (we believe forecasting can take away from the priority of today). However, you can use your spending not to plan for tomorrow (or, more specifically when you buy your new car).

      Right now, you're budgeting for daycare. Once your little one starts school, can you budget your daycare funds towards a car fund? If so, how much does that give you for a car note, insurance, etc? Using your categories as a guide and the available balances you have in those categories can give you a good idea of what you'll have to work with in the future. :)

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  • I found future budgeting capability in YNAB4 very helpful. I would fill-in budgets for each month of the year with known income and expenses. I could show four months at a time on the screen and see how the year would unfold. With a second income as a consultant, it was great to be able to allocate unexpected income to discretionary items (like retirement) and be confident that we would be cash-positive for the remainder of the year.  In new YNAB that has all been discarded and future projections are not possible. A big step backwards IMHO.

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    • Elwoodom Actually, it's just changed to give you a more accurate picture. It's a huge step forward.  There is a Youtube video explaining this. I just don't have the link to it right now.  Search it, I'm sure you'll find something that helps you plan ahead. 

      Personally, I just use the transaction register and future transactions. That allows you to plan ahead pretty well.

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      • Elwoodom
      • Living the dream
      • Gold_Drum.1
      • 3 yrs ago
      • Reported - view

      Gold Tiger Thanks for the reply.  I don't know which YouTube video you're referring to. I watched a couple Whiteboard Wed videos on YouTube and saw why Jesse believes in only budgeting $'s you have on hand in order to force discipline due to scarcity. However, being on a set salary, I have the luxury of being able to enter income in future months with certainty, so wish YNAB would let me do that. The result would be I can be more aggressive with savings.

      Can you explain your statement below with a little more detail.....I don't quite follow.  Thanks.

      Gold Tiger said:
      Personally, I just use the transaction register and future transactions. That allows you to plan ahead pretty well.
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    • Elwoodom One short video that helped me understand things is this one >> https://youtu.be/PmzZaHwx-0s

      It will also help you understand what I was talking about when using the future transactions method. 

      As someone that has been using programs like Mint, Every Dollar, and traditional accounting methods I cannot express how much better the YNAB method has been.  Not only do I accumulate more savings goals, but I get a better financial picture and can plan my spending far better than ever before. 

      It was VERY hard to get out of the traditional methods which have never helped me achieve my goals. 

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      • nolesrule
      • Stealing From the Future fix is an improvement but is incomplete....
      • nolesrule
      • 3 yrs ago
      • Reported - view

      Gold Tiger  Elwoodom The ability to project out future months had no bearing on the current month, and that is all that is required to maintain budget accuracy. Being able to manipulate how you distribute income and see the results is actually very useful in a lot of cases where just messing with goals won't help because you may be making multiple simultaneous changes.

      I actually project out through January of the next year in my YNAB4 budget. When we get bonuses or raises it allows me to project out the effect of budget changes. And I'm well aware that it's just a projection and not set in stone.

       

      However, the fact that I do this is what leads me to the advice to tell newer users not to budget actual money on hand into future months beyond the next month... it's a lot of work to make category amount changes for all those months.

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      • Patzer
      • Retired at age 60. Thank you, YNAB!
      • Patzer
      • 3 yrs ago
      • 1
      • Reported - view

      Elwoodom Gold Tiger nolesrule I guess I'm the outlier here; I never projected income or budget in YNAB 4.  I did take irregular income, such as an annual bonus, and use it to fund non-monthly categories, such as Roth IRA Contributions.  But most of the funding of investment was done in the monthly budgeting process, from salvaging funds I hadn't spent the previous month and sending them to a brokerage account.

      In theory, while I was working I could have projected out wage income for the rest of the year. After all, I knew my net paycheck numbers and they would stay the same until the following January when withholding tables changed.  Except my life changed in the middle of 2016.  On June 22, management pi$$ed me off and I decided to retire on August 31.  I did a ton of projections after that, none of them in detail in YNAB.  But YNAB 4 helped me adjust to the changed reality just fine.

      Now that the dust has settled from the retirement transition, I'm working on learning how to port my budget process from YNAB 4 to web YNAB.  It can be done, and I really need the category tracking and monthly monitoring.  But projections?  I do those broad-brush on an annual basis, outside of YNAB.  The bottom line answer is how much budget income I need to generate from investments.  Make that decision for a calendar year, then budget in YNAB to live within how much income I decided to have.  Lather, rinse, repeat.

      The key thing for me is, the budget discipline of living within my income during the 4th quarter of the year when things don't look a lot like I projected at the beginning of the year is a lot better for my margin of safety than simply taking more money out of investments to cover costs that were higher than anticipated.  I can give myself a raise for inflation in January, I don't need to be spending down savings in response to every unanticipated cost.

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