Allocation vs. Forecasting Budgeting

I have been using the EveryDollar application from Dave Ramsey for the past couple of years.  However, there are some things about that app which I have to take some issue with.   These are some of the things I've found between both of the applications in the past week:

EveryDollar:

  • Good for Forecasting - The creation of budget items is very simplistic and very easy to see at a glance. 
  • Good for a strategic overview - While the forecast will help plan how the month will play out overall, it does not have that capability of stating which dollar is getting spent WHEN during the month

YNAB:

  • Excellent allocation budgeting - You know when you have dollars to spend on what category
  • The goals category allow you to do some planning for the month, though you don't have any income goals for the real strategic planning.

So it would seem to me the ideal software would be some mix between the Ramsey and YNAB solutions.  Ramsey to show what you anticipate coming in for the month to be able to set goals against, and YNAB to track spending against goals. 

My question is, what do people using YNAB do to ensure their goals do not outpace their income using YNAB?  Or do you use some other software for that piece?

Thanks

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  • Get to the point where you can use all of one month's income to fund the next month's budget. Most of us who use YNAB have never really needed more than that. If you have variable monthly income there are techniques you can use to smooth it out so you can make your months the same.

    The fundamental question is whether you are funding each category to reach your target goal at the target time, but that doesn't require forecasting. It requires knowing how much you need to fund each category every month and then actually doing it.

    Like 4
  • I agree, and am working toward that.  What I would like to be able to make sure of is that my goals are not exceeding my monthly anticipated income (for me being salary, it's a set amount each month). 

    Even if I had something where I could enter in all of the anticipated income streams and the goals line could let me know the over/under for the month it would allow me to see progress toward getting to that month-ahead state.  It would also allow my me and my spouse to plan for larger purchases and make it easier to say whether or not we will be able to afford something or how long we will need to save to accomplish a spending goal.

    The underlying point is that if I don't have something stating whether or not the income will match the goals (particularly for those goals that are more variable in nature such as larger expenses), it becomes more challenging to set appropriate expectations and can create arguments rather than solutions where we are moving forward together. 

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  • Set goals. 

    Select all categories. 

    Look in the inspector at the total underfunded. 

    Or, use the Toolkit to display total goals without the selection click. 

    This works best at the beginning of the month, before you've allocated and wammed (used rule 3). 

    This will also work if you've fully funded your target savings by date goals, then advance to the next month to see a clean slate. 

    Alternatively, if you're not exclusively using last month's money for this month's budget,  I'd really recommend using paper or a spreadsheet to decide what your monthly allocations will be. The reason for this is that I find it easier to fiddle with the numbers outside of YNAB. If I had originally wanted to allocate $1500 more than I would get, I could play with cutting categories until my priorities matched my financial ability. If you do this without being able to budget the whole month on the 1st, you can easily run into SFTF (Stealing From The Future) issues or the accidental typing over of a budget cell that already has rule 3 activity. Those are harder to track down. Besides, I can see all my categories at once when I wrote them on a paper. I can't on YNAB. 

    When you can stretch your paycheck to last long enough to allow you to budget a whole month at once, the external planning is less important. This is my opinion, of course. 

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    • Move Light Sound Life You may well be right on the funding a month in advance.  This is why I'm looking that way.  

      As an example, I just went through the exercise for next month showing the anticipated income (taxes do vary from paycheck to paycheck) and subtracting out the individual categorized goals for each of my areas.  Found that I will have an additional $300 to move into November at the end of the month.  That's good.  It allows me to see progress and that I'm moving in the right direction.  If it were over by $300 and I was SFTF, I would know with the goals early on and could have the discussion with my spouse to right-size goals.  Perhaps this is something that YNAB toolkit could incorporate since they already have an option to show the goals.  If they could allow simply putting in a total estimated income for the month that could subtract from that number, it would provide incentive to keep going on or to make changes to goals where necessary.

      Keep in mind, I've been doing the forecast for the past couple of years so the allocation budget is a new thing for me.  I do like the premise, I just think there is also a point to forecasting; particularly when setting longer-term goals. 

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  • There seems to be an emphasis on setting goals from day # 1 in YNAB.  I have to say that this would not have worked for me, so luckily the goals features were not available to me in the earlier version of YNAB,  when I began using the software.  I really needed a few months of getting to know my numbers.

    Even though I was a budgeter before YNAB, I had no real sense of how much I really spent because I was one of those who chronically overspent by little amounts in all my categories in month # 1 by telling myself I would spend less in months # 2, # 3, etc.  After three months of using YNAB and moving funds around to  just deal with overspending, I had an eye-opening education about how much I spent on everything. It finally made clear just why I wasn't hitting my savings goals.

    Because I have a predictable monthly income, getting an accurate baseline on spending first was an essential precursor to knowing how much "extra" there was in my monthly budget, and since it's the "extra" that funds those longer-term goals, it also made clear to me how long it would take to build up my "extra" into a specific goal amount.

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    • HappyDance For me the emphasis on setting goals from day 1 is due to the fact that I have been doing so in a forecasting method using the other software.  I have also fallen into the trap you mention about shifting money around to cover overspending.  As I get further into this I hope to be able to get a better picture of the actual spends so I can be better at goals.  

      This being said, the primary thing I want to make sure of is that my goals don't exceed my income as I work to bring them closer to reality.  Discretionary funds can be modified to reflect reality.  However, when an adult son or daughter moves back home (for example), it would be nice to be able to predict the additional strain that will add on the budget for things like food, electricity, fuel, etc.  and when this type of thing happens, I'd like to be able to see how much of the paycheck remainder this will eat up. 

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  • Assuming consistent income, there is zero need to forecast because of Rule 2. If I were to copy a budget entry forward for the next 12 months and then add it up, it's hardly a surprise it will exactly equal what I need to pay the bill. Those redundant months are completely unnecessary, and the ONLY thing that matters is whether budget entries fit within my monthly income constraint.

    Now, expand the scenario to include variable income. In my view, the better approach is not to change the above budgeting process that is known to work. Rather, the thing to change is to normalize income, much like we do for expenses. Bam, now I'm back to the consistent "effective" income.

    With such a process, I KNOW I can afford EVERYTHING in my plan... all without flipping through multiple screens.

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    • dakinemaui I think you just made my point.  The only thing that matters is whether budget entries fit within my monthly income constraint.  I don't want to plan or even set goals above what I have the capability of achieving.  I want to set targets that I can consistently hit.  If that means I budget for a smaller Christmas (to use the Rule 2 example), because my income will not allow me to be as lavish as I would like to be, then so be it.  However, if I do not understand (or see) the forecast income (the money that will be coming in), how can I set goals that will not exceed my income?

      I know I will be putting money into the budget categories as the money is there.  I agree with that and I like it.  I also have the personality that I like to hit goals I set.  This is why I'd like to be able to set goals that do not exceed my income.  Then I can start to see things turn green all over the place and get that "feel-good" feeling. 

      In all of these responses I am not trying to change anyone's thought process.  I'm simply trying to explain where I am and hopefully either explain something that could make the software better, or get a better internal understanding that shifts my own paradigm.  I hope everyone understands this. 

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      • dakinemaui
      • dakinemaui
      • 11 mths ago
      • Reported - view

      Hot Pink Welder I figured others had explained how to see whether budget entries fit within that constraint. I was merely addressing this:

      So it would seem to me the ideal software would be some mix between the Ramsey and YNAB solutions.  

      YNAB already has that mix. The budget is the plan for your money. Goals (or even just putting the desired amounts in the category name) is the plan for making your plan for your money. ;-)

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  • Hot Pink Welder said:
    when an adult son or daughter moves back home (for example), it would be nice to be able to predict the additional strain that will add on the budget for things like food, electricity, fuel, etc. 

    Forecasting won't tell you those things. Past history or extrapolation, e.g., multiplying water usage by 1.5 (3 people instead of 2), tells you those budget entries.

    Since those things are presumably high priorities, something else of LOWER priority has to give up funds. Forecasting doesn't tell you that either. The relative importance of various categories drives whether it gets funded or not, as we have to stop when the total exceeds expected income. This is true for both an allocation budget or a forecasted budget.

    Hot Pink Welder said:
    I'd like to be able to see how much of the paycheck remainder this will eat up.

    There should not be any paycheck remainder. The relevant question is what is being funded now that cannot be funded later. Hint, it should be the least important things in your priority hierarchy.

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  • Hot Pink Welder said:
    see progress toward getting to that month-ahead state

    This is easily done with a category, as you have to save to get ahead. When you are paid, budget what you need in this month's area. Budget everything else in a holding category (many call this "Income Next Month"). In next month's area, move those funds from the INM category to TBB and budget as desired. (This results in a negative budget entry in the INM category.) Then simply repeat.

    The kicker is that when you budget to the INM category, you'll add to the existing, negative) budget entry. If you wind up with a positive budget value at the end of the month, then you're clearly making progress.

    As a heads up, after you're reached the point where you don't have to budget anything to the current month, you can switch to a similar but more efficient workflow that avoids the need to budget with every income arrival.

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    • dakinemaui This idea could well work for a month-by-month categorization of how things are.  I'm not sure I fully get where you're going with it.  Are you stating that each month the extra is put in the INM budget and then planned for the whole month next month?  Would this then show months worth of money in the INM or would you budget out so you are seeing month-by-month how you are doing with the goals?

      Again, this is about not setting goals too high such that there is not enough money to cover the goals.  I like to see things turn green and would like to be certain that my goals do not exceed my ability to meet them. 

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      • dakinemaui
      • dakinemaui
      • 11 mths ago
      • Reported - view

      Hot Pink Welder Where I'm going with the INM category is seeing progress toward getting ahead. Like any other category, "getting ahead" has to fit somewhere in your priority hierarchy.

      I wasn't talking about how to see whether allocations (across all categories) fit within income constraints. Again, the Toolkit Extension or the Underfunded QuickBudget total (in an empty month) can help with that. If nothing else, manually type in budget entries into an empty month in YNAB or a spreadsheet.

      Once you are a month ahead, it's more obvious since the initial To Be Budgeted should always equal your income from the previous month. If you hit Underfunded and wind up with a negative TBB, your goal totals obviously total more than your income.

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    • dakinemaui I think I understand.  I will use the toolkit to see the goals total and will just need to keep track of the anticipated income separate.  It's just one of those things for a 3-paycheck month I will have to remain cognizant of.

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      • dakinemaui
      • dakinemaui
      • 11 mths ago
      • 1
      • Reported - view

      Hot Pink Welder Long term, I think it's useful to look at the 3rd bi-weekly check in a month as variable income and normalize it. Spread it over the following 6 months, by releasing 1/6 of it back to TBB each month.

      In the short term, most will use it to accelerate a high priority. One possibility along those lines is to use it to facilitate living on last months income, greatly simplifying the budgeting process and improving clarity. The latter, of course, was the motivation of your original post.

      Like 1
    • Hot Pink Welder Hello... I'm confused what the "toolkit extension" is. Can you or someone else help explain? Is this a Chrome extension?? 

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  • Tracey Daniel The toolkit extension I referred to is a Chrome plugin.  To my knowledge it is not maintained by YNAB itself, but has active developers who are interested in the YNAB community who work toward enhancing the YNAB experience on your browser.  You can check it out on the chrome store (toolkit for YNAB is the name of the plugin I believe).

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  • Coming from someone who has used a forecasting tool called Debtinator for the last several years this really helped me frame my mind around how everything works. When I first learned there was not a future piece to understand the age of money and how to determine how much extra I might be able to spend on a debt I think my brain broke haha!

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  • I didn't see it mentioned but scheduled transactions and the running balance helps one to look ahead in YNAB. I can see my future month of activity at the top of my checking account and what my checking balance will be at all times during that period as well as future bills such as property taxes, car registration, and yearly homeowner's insurance.

    There is a forecasting element to YNAB as you're setting yourself up to handle all future situations via Rule 2: Embrace your True Expenses.

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  • Before YNAB, I used a Google Sheet to keep track of what expenses were coming up and which paycheck I needed to pay them out of. I've just continued using my spreadsheet to help keep my mind right about what is upcoming. I realized I got kind of panicky without knowing what was around the corner. I fill out the spreadsheet with a generic budget (Paycheck A = mortgage, insurance, food, gas; Paycheck B = Electricity, Gym membership, food, gas; etc.) and add things that I know are coming up. Some people are more organized and add money to each category little by little to fund coming expenses. But I'm still working on that and my spreadsheet eases my mind! 

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