1st of the Month pmt, age of money
I started using YNAB last month (but I didn't fully utilize the trial 100%, still trying to get the hang of it) and am still trying to wrap my head around the way the software operates and how it calculates what it calculates. I've been immersing myself in videos and articles about YNAB for the past few weeks, so my brain is a little foggy/overloaded with info.
Rule #4- Age of your money. I want to age our money to be 30 days. I understand the concept. ie: We pay for garbage service quarterly. $60/per quarter. So if I budget $20/month, by the time I pay our garbage bill, the average age of that money used is 60 days. Great! But I can't seem to wrap my head around aging my money with 1st of the months bills, ie the mortgage. My paydays are steady (bi-weekly), but my husbands are not. My husband is self employed. He keeps all his payments from clients in his business bank account, and when I need money to pay our personal bills, he sporadically deposits money into our personal account. Usually twice a month, and enough to get by for the next 15 days. How I work our current budget (paycheck to paycheck), is that I tell my husband around the 25th of March, "Ok, I need $xxx to pay April's mortgage due on the 1st, and $xx to pay the rest of the bills due between the 1st-15th" He will then transfer the $xxx for me to pay the mortgage/bills. Rinse, recycle, repeat close to the 15th of the month for stuff due the 16th-31st. I know that situation is not the most ideal, but that is a problem for another day.
With our mortgage due on the 1st of the month, I'm not really sure how to age the money for that when YNAB is so geared on a monthly basis and our money comes in sporadically. I am confused/at a loss on how to allocate our mortgage payment in YNAB and get to the process of aging money when we currently have our money incoming and outgoing on basically the same day. I'm thinking one way to get ahead would be to budget 2 months worth of mortgage in one month, so that gets me a month ahead, but we don't have the funds for that. Another way would be to set the mortgage due the last day of the month preceding the current bill? ie April 1st's mortgage due date would be March 31st in YNAB so I can allocate March's money to it? Any tips? Thanks! (ps I think I am overthinking this whole ordeal?)
Most experienced YNABers will tell you that a far better goal is to be a month ahead of all your spending, rather than focusing on AOM. AOM is a metric that is hardly even nominally useful because of the way it calculates--it can easily go up while your financial position is actually slipping.
A better way to operationalize being 30 days ahead is what you'll hear called "being classically buffered." (This name comes from the retronym for YNAB 4, "YNAB Classic.") What it means is that in each month, when you receive pay, you hold onto that pay until the first of the following month, at which point, all the pay from the previous month is used to budget that month. Then in the new month, you begin again collecting pay, and budget it in the next month, etc. etc.
You get there by spending less than you earn. Each time you get paid, try to budget some money into a category called "Income for Next Month." Then the next month, you'll use the move money tool (aka click on the green bubble) to put that money in To Be Budgeted and budget with it. You can do this piecemeal, where in February you have say, $500 leftover, and then you begin March by moving that $500 to TBB and then budget, or you can wait until you have the full amount you'll need to budget an entire month in your category. The goal is to get to a point where you don't need any money earned in the current month to spend in the current month.
Pink Moose said:
My paydays are steady (bi-weekly), but my husbands are not. My husband is self employed. He keeps all his payments from clients in his business bank account, and when I need money to pay our personal bills, he sporadically deposits money into our personal account.
Just to add on--being buffered is killer for this kind of pay schedule. You begin each month knowing exactly how much money you have for everything you need to spend on, plan for, and save for, regardless of who will get invoiced this month and how much they will pay.
Pink Moose Someone who is better at explaining this will no doubt come along soon*, but I thought I'd share my experience and maybe it will help:
When my husband and I started YNAB, Rule 4 was called "Live on last month's income" or something like that - meaning that the goal was to essentially accrue a buffer of a full month's income. So we set up a goal category that we called "Rule 4" in our budget, and we put any extra funds there until we had enough to put it back into our TBB, and now we're a month ahead every month. (Does that make sense?)
The "Age of Money" business is supposed to reflect that concept, if I understand it correctly (and I don't really...the number I have never seems to make any sense to me), so that once you are a month ahead, your Age of Money should be at 30 days or more. But I personally recommend ignoring Age of Money, and working on saving a month's "buffer" so that you are a month ahead of yourselves. This "classic" interpretation of Rule 4 was revolutionary for us, and it completely changed our lives once we got there (and it took us over 18 months to get there).
*(As I was writing this, WordTenor did indeed explain it better. :D )
Pink Moose said:
WordTenor ETA ..Doesn't that somewhat defy the purpose of zero-based budgeting though?
It does not. The way you were working it in a Google spreadsheet indeed does defy the purpose of zero based budget. What we are saying is that when you earn $5000 in a month, you set $1000 aside to help you become buffered. It’s cold hard cash that is in your hands. Over four months, that category grows to $4000, which you can then use to fund the next month. Just like the rest of the software, you are still working with cash you have on hand.
now you might sweep leftover money from a category into the buffer category, that would be a good way to work toward being buffered, but usually you don’t get there without being a bit more deliberate about setting aside money for that purpose.