Budgeting future income
I know a fundamental tenet of YNAB is to only budget the money you actually have. This philosophy doesn't cover my desire to plan ahead. For example, if I receive $3000 income on the 1st of the month from one source and expect to receive $500 from another source on the 22nd, then I want to see that this month's income is expected to be $3500.
How it works is that I enter the $3000 income transaction in the check register on the 1st and categorize it to "Inflow: To be budgeted." I would then see $3000 under "funds for this month", and budget for that amount. So far so good. But, if I enter a future transaction in the register for $500 on the 22nd, it does not increase "funds for this month" to $3500. And so, when I'm planning (budgeting for this month), I have to either remember I'm getting an extra $500 and over budget, wait until the 22nd when the money actually arrives in the account to complete my budget planning. Is this how it is intended to work? I can't accurately budget even this month until all my income is received? Doesn't sound right. Neither does it feel right to over budget the $500 and wait until it arrives to balance.
My workaround is to record the $500 on the 1st before it actually occurred so that my "funds for this month" is $3500 and I can do a complete budget. But this doesn't feel right either because the $500 has not arrived and yet I have transaction in my register that says it does.
What I think would work is to have the option of any future income for the current month that is categorized as "Inflow: To be budgeted" to be totaled in the "Funds for this month" number. In fact, when you hover over that number, the tooltip says: "[this month]'s inflows categorized 'to be budgeted'," which sounds exactly like how I'm thinking it should work.
-
You should have the Running Total showing, and record the $500 on the 22nd, when you expect to receive it. It will show you where you will be, as far as balance, when that $500 actually arrives, but you won't be falsely budgeting, i.e., money you don't have.
-
This to me is a problem with the software not a limitation on the method. The software dosen't seem to "yet" support some features around future transactions. I wish it could also tell me the total amount of all future spending in a given month where I have pending transactions. I think Income like you describe is a good use case for this. I'm hoping the development team could add these features to at least show me how much income I should be getting instead of the money I have right now, if those checks are for certain.
-
Another recent thread wondering about the same thing:
https://support.youneedabudget.com/t/y4h89bk/negative-budgeting
You should definitely be planning with full knowledge of that future income. In fact there's an entire Rule that leverages that. (#2)
However, that doesn't mean you should allocate money before it can be spent. Doing so paints a false picture of your finances.
-
What people do is they save their income of this month in a category and use it to budget the next month just before next month arrives. This decouples your budgeting from your income. It doesn't matter anymore when in the month you receive income.
If you have enough savings, you could try that. Take from your savings categories the same amount as you received last month as income. Budget with it. When you receive income this month (incl. the $300 you received on the 1st), budget it to a category (for example Next Month Income). Then, when you are ready to budget for the next month, simply negative budget your income from Next Month Income in October and budget there. Keep going every month.
Note: it is also possible to directly categorise income to the Next Month Income category and recategorise to To Be Budgeted (using a search in the All Accounts view) when you are ready to budget next month.
This way you are truly using the methodology: budget all and only the money you already have.
-
That is exactly how it is intended to work.
Then when you look at your categories to make spending decisions, you know that all the money you see there really exists. If you inflate the numbers with money you expect to get later, you need to worry about the timing of your spending, as well as the amount.
-
Slate Blue Pilot (2903ac015cdb) said:
This to me is a problem with the software not a limitation on the method.No, it is the method and the software supports it to the T and exactly how it was intended. If you follow the method as intended, you will get ahead. How do I know? Because I’ve lived it for 10 years and have reaped the rewards.
Get a month ahead and then you can budget a month at a time.
-
Superbone I'm not saying its not the method. But after getting my month ahead, it would be nice to visualize Ahead using the scheduled transactions. I dont think there is a way to do that right now.
-
Slate Blue Pilot (2903ac015cdb) a couple of things I do is (1) in the all accounts view select scheduled transactions and next month. Then click on the checkbox at the top left (select all) and the total will show at the top right (2) flip ahead to next months budget and click box at top left to select all and then look at the underfunded amount in quick budget at the right panel. If you just want to see recurring if there is not enough budgeted to cover the upcoming transaction, the orange in the available column has a calendar beside it. You could just select those if you want only scheduled. I admit the limitation is that you can only see recurring scheduled One month ahead but I find this gives me a rough idea of what I need for the upcoming month. In method 1 if your income is scheduled then they will be included in the scheduled transactions list and you can get a net figure.
and yes I agree that the pandemic is (hopefully) once in a lifetime but I have seen many people sidelined by unexpected things (layoffs, illness, divorce) that I am a bit cynical. aka “awfulizer”. I enjoy killing off my family members in various scenarios to highlight to them the risks of no will, high debts, etc.
and even in this pandemic, my husbands paycheque was a few days late a couple of times (small business struggling to automate manual check issuing overnight).
my motto is hope for the best, plan for the Worst.
-
-
dg said:
expect to receive $500 from another source on the 22nd,the key word here is EXPECT. If the pandemic has taught us anything it is that anything can happen. YNAB is set up to only allow you to spend what you have. My husband liked to do this forward budgeting or as I call it "magic math". That $500 may not show up. Ever. But if you work on the premise of spending money based on expected income, you are playing with fire.
-
MXMOM said:
the key word here is EXPECT. If the pandemic has taught us anything it is that anything can happen. YNAB is set up to only allow you to spend what you have. My husband liked to do this forward budgeting or as I call it "magic math". That $500 may not show up. Ever. But if you work on the premise of spending money based on expected income, you are playing with fire.Though I agree in principle, I've never found this argument very persuasive, and can see why it wouldn't resonate with new users.
"Sure, anything can happen, but pandemics are once-in-a-lifetime events, and my paycheck has shown up reliably every two-weeks for over a decade! Won't my budget be more useful if it's based on things that are likely to actually happen? Even if disaster strikes, I can always react and adjust accordingly. Shouldn't I optimize my budget for the 99.9% case and not the 0.1% case?"
Over time, I've come to realize that the risk of with budgeting with expected income isn't rooted in the possibility that the money may not show up. (Depending on your situation, that risk may be very low.)Instead, the bigger risk is that it clouds your judgment and encourages poor decision-making. If (when) you overspend a category, YNAB wants you to grapple with a simple truth: The money has to come from somewhere. Following the methodology, you must move money from another category (or categories) to make up the difference. You must confront the consequences of overspending.
When you allow yourself to budget with expected income, you give yourself a false (and all-too-tempting) alternative: "I'll pay for this with money I earn in the future." Instead of confronting those consequences, you hide from them. You're writing an IOU to yourself. That's an extremely slippery slope; it's the very mindset that sinks folks into massive debt.
-
Make it a goal of yours to get one month ahead. In your case your buffer category will become useful as soon as you can get it up to $500 because the rest of your income usually arrives on the 1st anyway.
Once you have your $500 buffer category filled, next month you can empty it on the first of the month to give yourself the $500 available in TBB. Combined with your usual income you now have your expected $3500. When the 22nd comes around budget the $500 to your buffer category so you can repeat this again next month.-
SgtBatten we are 1/2 month ahead and this is what we do. When we first started YNAB we came off the Dave Ramsey method which accounts for the entire month in advance. We continued that until I realized we were doing the credit card float. Probably could have continued without issues but I find it easier to work with real dollars. So we switched (ouch) and now do as you described.
-
-
The expectation of future income is implicitly part of my budget, long before that income has arrived and is included in my "To Be Budgeted" balance.
For example, there's no way I'd allow myself to budget (and spend) hundreds of dollars this month toward "Entertainment" and "Restaurants" if I was worried I was about to lose my job. (I'd budget very differently under those circumstances!)
I still guard against the possibility of job loss. (It'd be reckless not to!) So I maintain a reasonably large "Income Replacement" category, which I accessed for the first time this past March when I was furloughed for a few weeks. (And I immediately adjusted my spending habits that month, and replenished that money once my income re-stabilized.)
The point is, at any given moment my budget (categories) are only filled with the money I have on hand. My ability to absorb an emergency expense (or income shortfall) is represented by the size of my "Emergency Fund" or "Income Replacement" categories. If I don't have very much money set aside in those categories, then I know that I'm at high risk, so I make it a priority to budget those categories according to my personal risk tolerance and the advice of personal finance experts.-
bret You can fight the system or embrace it. There is a "hack" whereby you can enter a negative expense, which will show up today as to be budgeted. However, it totally messes up several other calculations (age of money at the very least). I do not recommend this.
If you want forecasting (which is what you are doing, not budgeting), then go for PocketSmith as a supplement or create your own spreadsheet. There are enough issues with core budgeting to fix first before asking for forecasting, which really is not what YNAB espouses.
Myself, I would love to be freed from a monthly cycle and instead have YNAB follow income events as the next period in which I am tracking (that remains budgeting and not forecasting), but I digress.
And if you are frustrated, try installing the YNAB Toolkit. Many features give you additional insights beyond the core functionality. (Or integrate with the YNAB API if you are technically inclined).
-
Saish Dawg
I think you missed my point (or maybe I didn't explain it very well).
The YNAB system doesn't require you to assume the worst and budget as if each paycheck is your last. That would be absurd. Instead, the YNAB training materials pose this question (emphasis added):What does my money need to do before I am paid again?
In other words, the expectation of future income -- when it will arrive and how much there will be -- is an implicit part of every budget, even if you don't (and shouldn't) explicitly include that money in your budget.
I'm making this point to address the OP's concern:dg
I know a fundamental tenet of YNAB is to only budget the money you actually have. This philosophy doesn't cover my desire to plan ahead
YNAB absolutely requires you to plan ahead. Your budget should always be based on your best predictions of your future expenses and your future income. Your budget is your plan.
Those predictions will sometimes prove wrong, and that's completely normal and expected. So you adjust your budget accordingly and move on. (The essence of Rule 3.)
Maintaining an "Emergency Fund" category is a good way to guard against the risk of unexpected expenses. An "Income Replacement" category is a good way to guard against the risk of an unexpected income shortfalls. Having those categories "protects" your other categories from being impacted if (when) your predictions don't pan out.
-
bret I'd clarify to say the budget is your plan for the cash you currently hold. As you say, one definitely should have plans for the money that has yet to arrive, but I believe your point is that does not belong in categories.
Most people used to capture that aspect of the "plan" in the category name (e.g., Rent $950 per check). Goals are another way to store that information, which is seen in YNAB's explanation of a budget "template". In short, you create a plan as to how you will plan (once money arrives). Much time and thought is saved when you've got that worked out in advance -- allocation when new money actually does arrive is potentially a one-click endeavor.
-
bret Planning how to use money you do not have is forecasting. Planning how to use money you do have is budgeting. Future uses of money could either be funded with money you do have (budgeting true expenses) or that you plan to have (setting up goals).
-
dakinemaui
Definitely in hair splitting territory here, but I am mostly on a crusade to pushback against the hardliner notion that YNAB precludes users from considering future income when drafting their budgets.I think folks on these forums sometimes get carried away with the narrative that YNAB forces you to maintain "laser focus on the present", make no assumptions about future income, etc.
Newcomers may hear those things and (rightly) question how YNAB could possibly be useful under those constraints. (Case in point: The OP's concern that "this philosophy doesn't cover my desire to plan ahead.") It may help those users to hear that you can, in fact, plan ahead very effectively with YNAB -- and those plans should absolutely take expected future income into consideration.
-
Saish Dawg For many years in the YNAB community, the word "forecasting" is used in the context of budgeting money that one doesn't have. As far as I can tell, you and bret are trying to get the same point across: categories should only hold spendable cash and future money should not be ignored.
-
dakinemaui Yep. That's the sense in which I intended, however imperfectly.
-
Rule Two: Embrace your True Expenses includes future income. You have 12 months to save up for Christmas starting in January. You want $1200 to spend in December. The plan is to save $100 a month. $100 this month and $100 in each future month. You only have $100 towards that goal this month. The rest of it is coming from future income.
-
-
I use Ramsey's Everydollar to set the "up front" forecasted income/spend for the month. It allows you to enter your total expected income, and all your forecasted spending up-front (so you don't get to the middle of the month and wonder where you are going to get money to pay a bill)....zero based budgeting. I drive those numbers into YNAB as "goals" (minus the income, of course...to your point) and track throughout the month. YNAB is intended to track things as you are spending, and receiving money, it's not great at looking at the whole month up front and helping answer the tough 'what to I eliminate this month' questions. Neither software package is 100% ideal, so I use them both. If I am going to make $5000 this month, I want to plan where all of that should go (in Everydollar) in advance and then use YNAB to track and adjust day to day as things change. You could also use a spreadsheet to do what EveryDollar does I suppose. EveryDollar is NOT good at carrying money over month to month, moving money to other categories, giving you insight to what you can spend right now, etc etc.
-
bucktc
I used to separate the big picture (on paper, then a spreadsheet) from YNAB, too. Then I got a month ahead (the kind where all money earned in one month is budgeted in the following month, using certain workflows to make it clear and easy - not the 30 day age of money thing, which is irrelevant), and I swore I'd keep my spreadsheet... I haven't used it in two months. dakinemaui , you win. 😌
But, at least it's there for me to fiddle with numbers if I quit my job and need to figure out a new monthly template.
-
Move Light Sound Life 😁
-
bucktc I used to use DR Gazelle budget before they introduced Every Dollar. I didn't go with Every Dollar because it didn't take Canada into account whereas with YNAB, Canada feels like part of the family!
But when we first started using YNAB we replicated the DR spend every dollar on paper philosophy by entering the full months pay as an entry on Day 1 of the month. This let us budget the whole month based on expected pay. I decided I didn't like doing that because it didn't give us a good handle on how much money we really had and since we were still tight on money, the fear of bouncing a cheque was still very real.
We use a reward credit card to pay for everything that will accept credit card payments. Then I learned about the credit card float (many articles on YNAB site but I like this one https://www.youneedabudget.com/are-you-riding-the-credit-card-float-aka-unknowingly-living-paycheck-to-pay/) and realized that is what we were doing - using our credit card to fill in for money not yet earned. We decided to stop budgeting a month at a time and budget paycheque by paycheque - because that was really what we were doing, living paycheque to paycheque. We are currently one paycheque ahead which helps. Once we get a month ahead, then we can go back to budgeting a month at a time.
I have taken a pretty doomsday approach to not counting on the future (evidenced by some of the discussions on this forum in respect of saying that you never know if that cheque will come). People say that the pandemic is a once in a lifetime event and that they get paid every week without fail. I have seen too many situations where that is not the case, aside from the pandemic. From things as simple as technical problems (the paycheque doesn't get issued on the right day) to companies that seemed rock solid filing for bankruptcy, and personal tragedies like death, gambling secrets, and illness, there are so many ways the future is not guaranteed. As I said, I have been called an "awfulizer" by some, but I can tell everyone that the peace of not worrying about the bank balance or things not going as expected is priceless.
-
-
The other thing you can do for planning, is to use goals. Once you have your goals set, you can see in the right hand pane your monthly picture. You'll see the total goals, budgeted, and spending for the month.
