Where do you keep your future month expenses?

I suspect this might be more of a personal preference than a hard and fast rule, but who knows - let's see!  

The more I read from the YNAB book and hit the blogs, the more I hear that your Emergency Fund should not be in one lump category since we'll cover most emergencies by having the proper category ("Car Maintenance") and by having some number of months covered.

So what do your budgets look like?  Do you, for example, have "Rent/Mortgage" with 3 months worth of expenses always in there, truing up with each paycheck, or do you have a different category to cover expenses for future months?

I don't have my money aged enough to cover more than a month of expenses out yet, but I'm thinking the way I'll do it is setting goals on my immediate obligations that are 3x what I'll need, and I'll also keep my "86 Fund" (I've been laid off!)  which is just a blob of money that I can pull from should the absolute worst happen. 

I understand having that category of money whose only purpose is to make me feel better should I lose my job isn't quite in step with Rule #1, but that's the pillow that helps me sleep at night, no matter how much debt I'm trying to get out of.

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  • I feel like you're talking about two different things here....

    I have a category called "Income for next month" where my paychecks go each month. At the end of the month, before I flip to the next & start budgeting there, I move those funds TBB. That way, I am always budgeting for the month on last months income.

    If you aren't there yet, one way to get there is to put money left after budgeting each paycheck (including for True Expenses) or extra income into that category, and planning your budget around 2 biweekly or 4 weekly paychecks & putting the 3rd or 5th in the Income for next month category & using that first each month. Over time you build up enough that at some point you won't need to use any of the money you earn in the same month because you have already budgeted for everything.

    I have multiple savings categories for various types of True Expenses, including things like annual bills, car & home maintenance, & income replacement. These takes the place of a generic Emergency Fund in my budget.

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  • I budget the same amount to just about every category every month, and no farther than the next month in full, and that's for budgeting convenience.

    There really is no practical need to budget further out. if you have to redeploy, it's easier to have it all available in the current month you are working in than to have multiple future months of budget that need to change (this is also true of micro-changes to categories with steady amounts). At the same time, is holding multiple months of spending in a current month's category a good idea? How will you then use the category for spending guidance if you always have March and April's money sitting in the category in February?

    So, in order to manage your budget effectively for both cases, you don't want it in future months and you do not want it available to be spent now. That leaves holding categories, such as income Replacement or Emergency Fund or what have you as the best option to store the funds.

    Having separate categories by dividing up the Emergency Fund is just the next step in planning, because many of those things are not emergencies when you plan for them appropriately, and lumping them all together can result in planning for less than you really need. But that's a different subject than the above.

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  • The ultimate goal using a system like YNAB is for an "emergency" to become an exceedingly rare thing. Emergencies are stressful! You've reached budgeting nirvana when your big expenses aren't emergencies anymore -- because you anticipated them and have a plan to deal with them.

    When our 18-year old central AC died last summer, it wasn't an emergency because we already had a "Replace AC" category in our budget.  After we bought a new AC, the very next month we started saving for the next one (which we hope we won't need for another 20 years.)

    We do something like that for nearly every major expense that we might encounter-- appliance replacements, major home repairs, car repairs and replacements, vacations, home improvement projects, and more.

    The result is that we almost never access our general-purpose "Emergency Fund" category anymore.  The only emergency that we still need to guard against is a job loss. I may go ahead and rename the category, "Income Replacement" at some point.

    All that said, if you're new to this style of budgeting, it can be really hard to accurately forecast all your major expenses.  General purpose "Emergency Fund" or "Things I Forgot to Budget For" categories are a great way to add some cushion to your budget while you're still getting a handle on things.  But when you find yourself accessing those categories, you should pause and reflect on whether the expense was truly unforeseeable and if it's likely to happen again. If so, you should carve some money out of your budget so that, next time, it's not an emergency.

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  • Tomato Major said:
    I understand having that category of money whose only purpose is to make me feel better should I lose my job isn't quite in step with Rule #1

     That is exactly in step with Rule 1. :)

    Every dollar needs a job, and if that dollar's job is to lower anxiety in case of a layoff, then that's what it should do. However, you should still be adding to your Car Maintenance and other True Expenses. We don't want your "86 Fund" to be the cover all for car problems, home maintenance, etc. It's for a particular event, and other particular events should be covered in other categories.

    Adriana01 mentioned an "Income for next month" category, which is like the buffer category discussed in this video. You could also do as you mentioned and keep a certain amount in each category, then "true up" each time you're paid (the rest going to your "Income for next month" category or True Expenses). No hard and fast rule on how you choose to fund your categories, as long as they're funded to match your priorities. :)

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  • In my case, I have next month filled out at the end of this month in its entirety. I also have various "emergency-like" (in the "traditional" sense) categories such as Car Repair, Auto Deductible, Major Appliance Repair/Replacement, and the big one: Income Replacement with X months.

    I find keeping future months populated beyond next month to be counter-productive. It's simply more numbers to edit when priorities & amounts invariably change. Budgeting month-by-month (with two clicks at the end of each month) suits me. If I lost my job, I'd just release money from the IR category and it would be exactly like I was paid. (Whether I adjusted my spending is a different matter.)

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  • In the old YNAB desktop version, you could "trick" it to have future checks show in your budget in the future months sort of a forecasting system, but thankfully for me, they removed that in the web version.  I really think it is best to only budget money you have physical possession of.  If you you want a emergency fund then make that category. 

    We have an emergency fund and we also have car repair, house repair, medical expenses, etc. that all grow in months that we don't spend anything in them (sinking funds) so in some years we have had a pretty big bank balance because all the smaller categories had a lot of money sitting there.  At that point, you can do a fresh start or just move some around if it gets too big. 

    We have been doing YNAB since '12 and for a while now have enough money that when I get paid on the 5th of the month, I will go to the next month and budget for the entire month, but only for one month out.  I don't go out any further because I find myself moving things around if  something else comes up. 

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  • Tomato Major said:

    Where do you keep your future month expenses?

     In a future month category. It’s as simple as that.

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  • I have a Next Month category that all the income from the current month goes in to.

    I also have a 3 Month Buffer category that I am saving up 3 Months worth of necessary expenses in for WTSHTF periods.

    I don't want to save more than the current month in an Expense Category as I'd probably get confused.  I recognise one monthly mortgage $ payment and that's the max I'll keep there.

    Faness said:
    Every dollar needs a job, and if that dollar's job is to lower anxiety in case of a layoff, then that's what it should do. However, you should still be adding to your Car Maintenance and other True Expenses. We don't want your "86 Fund" to be the cover all for car problems, home maintenance, etc. It's for a particular event, and other particular events should be covered in other categories.

    For this purpose I keep an Insurance Deductibles category in addition to my Emergency Fund.  I also want to save for Emergency Flights since both my parents are overseas and elderly.

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