Living on last month's income?

I have been puzzled and a little disappointed that this principle of budgeting for your current month based on last month's income (the buffer), seemed to have disappeared in the new YNAB method. The "age of money" thing was/is confusing to me. That simple principle seemed so powerful to me and I couldn't understand why it went away.

However, I just recently realized that budgeting in the next month is essentially the same thing. Once you've made sure that all of your current month's categories are covered adequately, when you get more income you can go into next month to start filling those categories. That would seem to give me some peace of mind (when I get to that point) that I'm fine for this month and now planning ahead for next. Essentially living next month on what I earned this month. Am I on the right track with this? 

I have to admit that I didn't pay too much attention to the training materials since I was moving from YNAB classic. Maybe this is emphasized and I ignored it. But if not and if I'm not off track in my thinking, shouldn't this idea be pushed more?

Thanks.

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  • Hello! Yes, you're correct - and it's not just you...Age of Money is just confusing. It's essentially a fancy marketing idea IMO but in reality the number is rather impossible to parse (at least for a non-accounting person like me), and seems to mean very little, so I just do exactly what you describe above, which amounts to the same thing as "living on last month's income." I transitioned form the older model as well, and in my opinion that way was much easier to understand. I just ignore the AOM number - it's there, I see it go up and down seemingly without reason, and I pay no attention to it. :)

    A note: various people have different ways of implementing their next month's money - I fill in next month's budget with this month's income, and then when the month rolls over, it's all there. Other people put all of next month's money in a special category they create and then when the month rolls over they empty it and budget the money out into categories then, which prevents any errors in spending next month's money by accident, i.e. what's been called "stealing from the future." I've not encountered that problem so far as I correct any overages in my categories obsessively within the same month always, but everyone has small ways they differ in their approach and the time they want/have to spend in their budget on a regular basis.

    Hope this helps!

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      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 1 mth ago
      • 7
      • Reported - view

      Turquoise T-Rex It's Stealing From the Future. All bold and the proper casing is required. 馃槈

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    • nolesrule LOL. Noted!

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  • Budgeting into next month's area is similar to Classic Rule 4. Age of Money has nothing to do with either, since it's a backwards-looking spending metric, not a forward-looking budgeting metric.

    There are several issues, none of which is a show-stopper, but irritating nonetheless compared to the classic workflow:

    • Stealing From The Future: the current month's TBB will typically stay locked at $0 even when next month's TBB is negative. It's very easy to get yourself to where funds are double-booked without realizing it.
    • You have to budget with every income event: money always shows up in the current month, and leaving TBB nonzero is a bad idea for several reasons. Clarity suffers since your expenses are typically monthly, but you budget in paycheck-sized chunks.
    • Mixing of late & early income: Income posting late in last month can easily mix with income posting early in this month. The latter income should be sent into next month, but that amount isn't obvious when looking at TBB. You'd need to budget between the arrival of those incomes, which is complicated by "life" and Direct Import running the show for many users.

    Classically-minded users typically use a holding category to circumvent all these issues. Here's one description of specific workflows I would recommend for both cases (fully and partially buffered).

    Like 8
  • Turquoise T-Rex said:
    Age of Money is just confusing. It's essentially a fancy marketing idea IMO but in reality the number is rather impossible to parse (at least for a non-accounting person like me), and seems to mean very little

     Agreed!  And I am an accounting person LOL.  The problem with Age of Money is that if I am saving for something big (a car for example), my Age of Money will get larger and larger. But once I spend that money (buy the car), my Age of Money drops.  So it is not a particularly helpful metric.  

    I don't use the toolkit but there is a metric in there called Days Buffered which sounds more useful. 

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  • Turquoise T-Rex said:
    Other people put all of next month's money in a special category they create and then when the month rolls over they empty it

     This is what I do.  I also think that the old YNAB desktop version did this automatically which is one of things that throws people when they transition to the web version.  We are only one paycheque ahead right now, so I still have to budget paycheque by paycheque but it is also helpful when getting paid every other week and the first pay of that month is the 5th but the mortgage comes out on the first. 

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  • MXMOM said:
    I don't use the toolkit but there is a metric in there called Days Buffered which sounds more useful. 

     Days of Buffering metric (from YNAB toolkit extension) suffers the same limitations as Age of Money: Both metrics are distorted by "True Expense" money inside your budget.

    E.g. your "New Car" category balance will inflate your "Days of Buffering" (and Age of Money) up until the moment you make the purchase, and then those scores will come crashing down.

    It's wrong to equate "New Car" with a "Buffer" -- the same dollars cannot have multiple jobs. But that's exactly the kind of fuzzy thinking these kinds of metrics promote. So I consider them fundamentally flawed, and strongly urge new users to ignore them (or take them with a heaping dose of salt.)
     

    IMHO the spirit/intent of YNAB's Rule 4 is to encourage users to have some additional cushion inside their budget beyond their true expense savings. Rules 1-3 are all about keeping up with your expenses, or breaking even. Rule 4 is about getting ahead. The easiest way to accomplish that is to set aside some money into a category that you don't intend to ever spend from (e.g. "Emergency"). And then tracking your Rule-4 progress is as simple as observing a category balance -- no need for any fancy metrics.

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      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 1 mth ago
      • Reported - view

      bret New car has even more problems. Once you spend it, it becomes part of your average daily spending calculation. Well, the true Average daily spend on the car purchase itself (I'm not talking about TCO) is Purchase price / number of days owned. The denominator is unknown until the day you no longer own the car. Yet the DOB calculation will happily prorate it based on their own settings. Of course if use one of the shorter lookback periods, the cost of the car will drop off entirely once it has passed beyond the timeframe.

      My DOB would probably be much higher if I hadn't bought a car and made 2 house downpayments since I started using YNAB. I also run the 401k contributions through YNAB. So in all I think that accounts for nearly 20% of my outflows. Also, I've been self employed, so there's the estimated tax payments that would have been tax withholding and never touched the budget had I been a regular employee.

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  • bret said:
    Days of Buffering metric (from YNAB toolkit extension) suffers the same limitations as Age of Money: Both metrics are distorted by "True Expense" money inside your budget.

     Thats too bad.  I agree with the rest of your thinking.  The metrics are not important to me as long as I have money to cover my expenses.

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