Estimating future budget situation
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.
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
betterless 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.
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.
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.
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.