Trapped in Rule 3-An endless cycle of moving money around?

Hi Everyone,

Green Battery's post about a report for spending v what you budgeted resonates with me: https://support.youneedabudget.com/t/y71lxb/budget-vs-actual

I'm trying to follow the rules, trying to build a buffer and age my  money. I use Excel to forecast paychecks and bills, to get a big picture sense, and I have a couple of big expenses I'm trying to pay off for that assume certain budgets for my current expenses. 

What I keep running into is that I keep  overspending in a category, or usually a few categories by $15-$30, not huge, and then I move money around to cover it.  Next paycheck comes and I go to budget it all out, but I can't do what I planned on because I overspent and moved money around, yet I don't have that sense because I covered those expenses.  Not sure if that makes sense, but I want to have a better handle on how much I move money around and stop it so I can achieve my goals (embracing my true expenses).  It seems to happen that I overspend in my daily categories (groceries, household) at the expense of my long term categories (car expenses, taxes, debt).  Any advice?  I try to be realistic with my budget but this happens every time!

 

Thanks for your advice! 

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  • Hey Alice Blue Sidewinder , Great question!

    I get that tension. While it's so nice to be able to remain flexible and move money to cover overspending, sometimes you want to know where the leak is, so you can stay on target for some longer term savings goals! 

    I think a helpful resource that one of our teachers came up with is this Budget Template . In the blog post, she explains how creating this template will help you project what you need to budget. And one of the helpful consequences of setting category goals is that it helps you see where you're overspending and which categories are underfunded as a result! 

    For example, if you have a category goal for $150 in groceries, and you've seen the last two months you spend $200, then you can evaluate one of two things:

    (1) Was my $150 goal unrealistic and I really do need more in groceries to live?

    (2) Am I spending frivolously beyond my means with groceries?

    If it's #1, that's ok! Sometimes we have unrealistic goals and we realize that we actually need more money in a category to survive! If it's #2, then you can find ways to cut that spending and adjust in the next month. 

    Conversely, you can see the goals that get consistently underfunded as a result of your overspending. They'll be in orange each month. Take a look at those and ask some questions:

    (1) Is my monthly funding goal unrealistic? And do I need to adjust?

    (2) Is this goal still important to me, or have my priorities changed?

    If it's #1, then you can adjust the goal amount to align with your current situation (ie. I can't afford to save $50 per month on X"). If it's #2, you might realize that you don't need the goal at all or you need to adjust the priority of your goals and it's ok that it's going underfunded in this stretch. 

    Maybe you can start there and see where that takes you! 

    Like 1
    • Dan at YNAB   Thank you!

      I actually did see that budget template and set it up to make my budget this month, and that's where I realized, dang, I have a lot of expenses I'm not accounting for and want to.  I think I have a real perfectionist streak and want to be perfect....now......which I'm learning in many areas of life is really a big barrier to understanding and dealing with your actual life, which will help you get a lot closer to your goals then reacting to an unrealistic expectation or plan etc.! 

      One question...which I didn't realize I could do with the budget until writing this and looking back at the budget template post.... if I set a goal for $400 dollars for groceries, and I spend over  the course of the month $500, and I cover that spending with moving money around , I can still "track" that overspending by...looking at the Budget v Activity column. Do I have that right?  

       

      Thanks!

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      • Dan
      • Dan_YNAB
      • 2 yrs ago
      • 2
      • Reported - view

      Alice Blue Sidewinder In the category inspector (you'll see it in the web app, if you select that budget category), you'll find the information that will help you evaluate and make decisions going forward. 

      As you can see in the DEMO screenshot attached, you've set a goal for $400 in the groceries category. But spent $500, so you've covered that overspending and you end up with $0 available. From that point of view, you can't really tell if you've overshot your goal. 

      But, when you click on the category, and the category inspector opens up, you'll see the spending totals at the top, and the goal amounts either under Quick Budget or under Goals. That's where you can determine... "My intention was to spend $400, but I actually spent $500 - what needs to change going forward: my goal or my spending."

      Like 2
    • Dan at YNAB Thank you! That's great.  Let's see how I do :)

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    • Dan I appreciate that this will help things, but I'm still in the same position - I want to be able to tell over time which categories I historically overspent (aka under budgeted), AND I'd like to tell where I'm frequently pulling the funds from to cover it. 

      The goals vs. reality isn't perfect, though, because I want to be able to use goals for things I REALLY NEED to notice right away are underfunded (like my life insurance premium which used to surprise me somehow every time it rolled around. Thanks to YNAB, that's no longer an issue). Having those categories that have goals show up orange is a quick visual reminder of those important categories that are in trouble. If I start using goals for all categories, that loses its impact.

      Even just a report that showed every time money was moved from one category to another (other than "To be Budgeted" - or even include that as long as it's a report we could export and sort) that we could run as needed would be super useful. 

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    • Dan yeah I'm with Heather is not Sea Green . I understand the technique but that would mean that I would have to go through every single category that I think I may have over spent in one by one (because they're gray due to covering the overspending)  instead of just seeing a clear report.

       

      I do use the template technique to get a clear idea on what the full expenses of the month might look like but my goal is just to have awareness as far as to where we're not sticking to our plan the prior month so I can make adjustments. This technique makes it a little tedious especially if you have a lot of categories.

       

      If having this type of report is to difficult to implement into YNAB, maybe at least having a different color to identify when goals and actual spending don't match might help people make adjustments from month to month?

      Like 1
      • Dan
      • Dan_YNAB
      • 2 yrs ago
      • Reported - view

      Heather is not Sea Green  Angel Claudio Thanks for your patience as it took me a while to find this and respond! 😅

      I've sent both of your responses to our design team so they can take a look, but in the future,  take a moment to fill out this feedback form as this goes straight to our team as they make decisions on what's coming next in YNAB!

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  • I don't get it. You look at your average spending in each category and decide that it's either the right amount to spend or more than you want to spend and take action to reduce it.

    The amount of money you budget to a category, especially when you start, is just a guess and may or may not be a reflection of reality or of your priorities. Once you gather enough spending data (and depending on the category it could take a few months to a year), you just need to review your spending patterns, the amount budgeted is irrelevant.

    Like 4
  • nolesrule said:
    The amount of money you budget to a category, especially when you start, is just a guess and may or may not be a reflection of reality or of your priorities. Once you gather enough spending data (and depending on the category it could take a few months to a year), you just need to review your spending patterns, the amount budgeted is irrelevant.

     Heather is not Sea Green Angel Claudio This is a really important thing to come to terms with.  Once the month is past, your previous intentions are irrelevant, your actual intentions are revealed by looking at reality - what you spent.  Going forward you assert your forward looking priorities.  I know it really seems like your budget change history is important, because we're so used to backward looking budget tools that tell you that you 'missed' your target by $100 in food last month.  YNAB is different, it's about deciding what to do with the money you have now.  Let go of the past, it is gone.  Only the future matters.

    Like 3
  • I think anoter important piece of this puzzle, which hasn't been mentioned yet, is that it's important to look at category balances BEFORE making the spending decision. Ideally, you would decide before you actually spend where the money for this purchase will come from, rather than spending firs and then cover the overspending as best you can afterwards. That way, it's more feasible to evaluate, which category you'll take the money from and whether that's actually a good idea. 

    Like 9
      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 2 yrs ago
      • Reported - view

      Sea Green Sidewinder Yes, that's excellent advice, and really how one should be using YNAB when choosing whether or not to overspend a category.

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  • After using YNAB for a year and a half my wife and I were struggling to see why things were not changing in the aging of money etc. When I was keeping up with the budget and transactions money wasn't aging and goals weren't being met. A few months ago I found the Budget template only by searching for forecasting (and know how YNAB feels about that). While the template does help a lot there is one thing it doesn't do that a simple spreadsheet or the dreaded forecast model does and that is keep a budget in the bounds of income. It is pretty shocking that using the template can expose underfunding, but that number is not combined with the scheduled income transactions to show a net underfunding or surplus. I found out after going through my initial template that I was underfunded by over 1k! How can that be you may ask? It is the basic flaw of Rule 2 and Rule 3. Rule 2 does have you create goals and what not to embrace your true expenses but it is not until you do the budget that you realize you really can't fund all of these true expenses. I don't recall the Budget Template being around in 2016 and if it was it wasn't part of the getting started guides. Either way the reality check of the budget was not in place as it was using a simple spreadsheet. Rule 3 as mentioned by OP gets even worse. As you role through the punches because you estimated incorrectly or other spending decisions show up an interesting thing happens (this is made worse if you don't have aging of 30 days and can't fund all categories for the whole month). As you fund one category before or after the unplanned transaction happens the category will eventually be zero. What is not apparent is that moved money had to come from somewhere else and those other categories had a specific funding amounts. So what needs to happen is a reduction in the funding for the account that was funds were moved from.  For example, let's say after following the template you get the underfunded amount to $2k and your income is $2k. This would be balanced and as the income is received money is allocated to the different categories. Let's say you are mid way in the month and have allocated $1k already leaving underfunded at $1k. One of the categories say Entertainment had a $30 goal and you decided to change it to $130 (circus is coming to town). At this point your underfunded amount is $1100. You have to now find $100 from other categories by reducing a scheduled transaction or goal. If you don't do this and merely move $100 from a category that has that amount available, that other category will stay yellow until you fund it to the original amount. If you do fund it to the original amount you will still be underfunded for the month by $100 and will find this out when allocating the second $1k of income. If the Budget template is done correctly, after all expected income is received all categories will be green or grey. So not only am I moving money around, I am now having to reduce the funding for other categories so my total underfunded amount doesn't change. I think YNAB does itself a disservice the way it speaks on forecasting. The budget template itself is using a forecasting model to see if it is realistic. All budgets where all the income to spend isn't already available have to use forecasting.  The solution YNAB presents is Rule 3 that is addressing changes in income or expenses.

    Like 1
      • WordTenor
      • I have the honor to be your obedient servant
      • WordTenor
      • 2 yrs ago
      • 5
      • Reported - view

      Navy Blue Inspector I think there is a different source to this problem and that is that the company has switched to telling you to use all the bells and whistles of their shiny software instead of helping you understand the basics of budgeting. 

      You don't create a budget that exceeds your income if you are only budgeting what you have. You can't. I can hope all I want and set all the goals for $1,000/mo set aside for fancy vacations, but I cant actually fund $1,000/mo of vacation. 

      I would suggest removing your goals and budgeting for a few months without them. Set goals only for those things that you *must* pay like insurance. Then critically address your budget--what are you hoping to find money for that there is not money for?how will you resolve this? Are those things higher priorities, or lower? 

      Thats how the budget works to help you see your limits. 

      Like 5
    • Navy Blue Inspector This really resonates with me! I agree- I really wish I could have a functionality that says you budgeted $1000 in May in these 10 categories, you ended up spending $1000 but it looked like this, so I can see where I am falling short of goals etc.  

      Like 1
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