Budgeting Future Income

TL:WR: Financial situation so dire that successfully living paycheck to paycheck would be a massive improvement.  How does someone in my position work Rule 1 right now?  If there is no way, what hacks or workarounds would you use? 

 

I recently downloaded the app.  I am getting the hang of it and I really like it.  I understand the concept of the method, but I don't know how to abide by rules 1 & 2 from the start.  We have two young children, a mortgage, significant childcare expenses, and massive amounts of  additional debt (credit card and student loans).   To be completely transparent about the severity of our situation, for the past 2 years we:

- Lived without a budget

- Had no real awareness of our income or account balances (husband and I still had joint accounts)

- Lived extremely beyond our means with credit cards (spent the equivalent of an additional modest annual income)

- Have no savings and no assets to liquidate (including any items of value to sell)

Going forward, we will have to live paycheck to paycheck with serious austerity measures just to meet our basic needs and keep up with paying debts, AND we both have to get second jobs.  

I have to plan a budget for the month even though I don't have all that money yet (though I know how much we will receive this month.)  This leaves my TBB thousands in the red.  I can figure out how to manipulate the app to still let it work as a budgeting tool for me - but I don't want to undermine the program either.   

How does someone in my position work Rule 1 right now?  If there is no way, what hacks or workarounds would you use?  Right now, I'm adding "phantom money" in the amount of future paychecks this month into a dummy account, then deleting it once the actual income arrives. 

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  • You shouldn't budget money you can't spend, since the budget is your spending plan. Certainly, it's a good thing to think about where you will put money when you get it, but leave it out of categories until then. This allows you to use category balances for spending guidance and be assured every penny of what a category says is available is, in fact, available.

    Make a plan for the money you have: allocate it to the most pressing things (highest priority categories). For instance, if you have to buy gas to go to work, put $X in a Fuel category. This protects it from accidentally being spent on Groceries, for example.

    Rent/Mortgage is probably coming up soon (and a roof over your head sounds pretty high-priority), so let's assume you'll need $Y in the Rent category by the end of the month. If you won't receive any more money before then, you simply must budget $Y of the money you have now toward Rent. OTOH, if you will be paid again before then, perhaps you can use some of that money for Rent. Unless the Rent exceeds what you will get, so you'll have to allocate some of today's money and fill in the rest when you get more. (I'm assuming you're paid more often than monthly.)

    That's the general idea, at least, and finding a "mix" of categories corresponding checks is the hardest part about all of this.

    Reply Like 7
      • Cyan Beat
      • Cyan_Beat.2
      • 3 days ago
      • Reported - view

      dakinemaui  Thank you for your reply!  It makes sense.  The only issue is that I have to make an overall plan as well to see how much extra income we will need.  So for example, the mortgage is $2600.  I can't wait until I have $2,600 in my checking account this month to add that as a category because I have to make sure that I will be able to pay it when it's due.  There are 4 paychecks a month coming in a 4 different times.  I have several automatic payments (car, student loan, credit card, etc).  My instinct is that I absolutely must enter those in as future transactions right now (because they WILL happen) even though the money isn't available right now (but it will be there at the time of the payment.)    

       

      Is there a way to think of months holistically even when you aren't at a point that you can use this month's income to pay next month's bills?

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      • dakinemaui
      • dakinemaui
      • 3 days ago
      • Reported - view
      Cyan Beat said:
      Is there a way to think of months holistically

       See my other note about letting priorities guide allocations which are computed via simple math. You can make these calculations now and put the answer in the category name for reference when a check arrives. The holistic constraint is that the total of budget entries must "fit" within your paycheck amount.

      Again, you allocate based on priority, so if anything has to wait, it should be stuff that's not as important. Realistically, no one can afford everything they want. There will always be stuff that has to wait (or doesn't even get a category because it's so far down the list of priorities).

      The difficult part of all this is evaluating the relative priorities. This is even more complicated in a joint budgeting scenario. Still, you'll get there. 

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      • Cyan Beat
      • Cyan_Beat.2
      • 3 days ago
      • Reported - view

      dakinemaui Thank you.  I read your other comment right after i replied.  It all makes sense.  The only "sticking" point is that we have absolutely no existing savings or money in the bank for a "startup."  My husband and I both had good, steady income and are both paid bimonthly (but at different times.)  I will try the method you gave of splitting the paychecks.  It still would only be workable if I was able to change the due date for all bills to the end of the month, but i will look into seeing if I can do that!

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  • Are you paid multiple times per month? If so, then as I mentioned previously, finding a mix of expenses that will "fit" within a paycheck is difficult. This is on top of establishing relative priority between various categories. IMHO, an easier option is to base budget entries strictly on priority and forget about trying to identify subsets of expenses that will fit -- just use simple math.

    This means you break EVERYTHING down to a per paycheck basis. This is what you do every time you're paid:

    1. Find your top priority category.

    2. See how many checks you'll budget between now and the outflow.

    3. Divide the remaining amount needed by that many checks and that is the per-check contribution. (Store this for future reference in the category name or notes.)

    4. Budget that much to the category.

    5. Find your next-most priority category and go back to step 2 (or 4 if the outflow and # of checks hasn't changed since the last time you did steps 2 & 3).

    6. When TBB is $0, you're done. That's all you can do, and less important expenses will have to wait.

    Note that #6 is not as bad as it seems. If you have to fund a $1200 Rent from a single check, that clearly will curtail how far down the priority list you can apply money. However, after paying Rent, you can split it over 2 checks, giving you another $600 to distribute to things that had to originally wait.

    Lastly, your existing savings can be used to help reduce the per-check demand for things that are occuring sooner than is ideal. The same Rent example works -- ideally you would split rent over 2 checks. If you're starting such that you'll only receive 1, you can make up the difference out of startup cash.

    (Hopefully your paycheck amounts are consistent. It's a little harder if you have two income streams, but you can apply this on a proportional basis. Record both per-check amounts for reference.)

    Reply Like 2
  • It might take a while to get away from paycheck to paycheck, and that's ok. Just keep at it. If things are really bad, then perhaps that should reflect in other places, like cutting cable, eating out, golf club membership, ymca, etc. If that's still not enough, then long term downsizing might be in order. After the almost 2 years of house issues I've gone thru, I'm not sold on homeownership as an investment anymore. Once I get the last of the major problems fixed, if a good rent deal comes up near by, I'm going to consider selling and renting. 

    Reply Like 1
  • Cyan Beat said:
    The only "sticking" point is that we have absolutely no existing savings or money in the bank for a "startup."

     On the bright side, that simplifies things as it removes ambiguity of what you need to do.

    Reply Like 2
      • Cyan Beat
      • Cyan_Beat.2
      • 3 days ago
      • Reported - view

      Khaki Storm Thank you!  This makes sense.  I am cutting everything, literally everything.  We only bought the house last year and for very little down payment, so not much equity. The house is also quite small, though not cheap (live in a very expensive state). Since I have two young kids just started in public school as well, the house is the one thing I see as non-negotiable priority 

      Reply Like
      • Khaki Storm
      • YNAB book topics online: https://support.youneedabudget.com/r/q5w48j
      • Khaki_Storm.1
      • 3 days ago
      • Reported - view

      Cyan Beat ok, there are still areas to look into. I'd not try them all at once, just tackle one a week and you'll get there. Here's some of the top of my head, house insurance and car insurance (shop it around, look at the independent agents too, be sure to stick with enough coverage and a quality rated company), electric usage (just found about $80 a month I was throwing away on electric letting the basement dehumidifier run too much), ac usage (we're set at 78 degrees, people lined before ac), a full fridge is a happy fridge (leave room for air flow, but even gallons of water to take up space, fridge works less), going to bed at dark (uses less lights). 

      Reply Like
  • Cyan Beat said:
    It still would only be workable if I was able to change the due date for all bills to the end of the month

    I don't recommend that. Someday, you'll want to push your income into the following month's area, which is easier when you have fewer expenses after receiving a check.

    Let your priorities guide allocations and suck it up where you can. The startup is definitely the hardest phase. Again, your checks will go further as you get past the startup phase of each expense and can split it across a greater number of checks. 

    As a last resort, you can use credit to fill in the gaps during this more expensive startup phase.

    Reply Like
  • Regarding your two different income streams treated proportionally... 

    As an example, you have $0 saved at present for a $1000 outflow and will receive two of your checks and one of partner's checks before you have to make that payment. Assume your checks are $600 and partner's checks are $500. This yields total income to be budgeted of $1700 (= 2*600 + 500).

    The contributions from each of your two checks will each be $353 (= $1000 * 600 / 1700). The contribution from partner's check would be $294 (= $1000 * 500 / 1700). Sanity check: $353 + $353 + $294 = $1000.

    Don't forget to redo the math when the number of checks changes (which is typical after paying the first instance).

    Reply Like 2
  • I like to create what I call an "ideal budget" to use as a template whenever my situation changes a lot.

    You create a blank budget & create all the categories you think you will need, & add all your accounts (exact balances don't matter for this. For one of the accounts, have the starting balance be what you normally earn in a month (rounded down is best). Budget out what you have to have each month to survive first, including a pro-rated amount of any annual expenses. Scheduled transactions for fixed bills are helpful to add now. Once your TBB hits 0 you are done budgeting. Record that plan either with goals or by adding the amount (or amount per paycheck) and due date to the category name.

    Once it is all tidied up, go to the menu & choose "make a fresh start". The new budget will have the same me, but will not have any money in the accounts or budget. All your category names, accounts, scheduled transactions, & goals are in place.

    Now you changes your starting balances on all your accounts to your current balances & budget what you need before you get paid again with what you have. The category names, goals, & scheduled transactions are your plan for the month.

    Good luck! I know this seems hard right now, but you can do this!

    Reply Like 1
  • Chiming in to say that I started YNAB with an extremely low income and very high expenses, as a graduate student living in a major urban area. I've done the "scrap to  make ends meet" thing. 

    One key to your success, and I mean this very strongly, is 100% embracing the method. This means having a firm idea of *what* you need to budget for, yes, but it also means that the budget itself needs to be sacred space. Don't have a penny of overspending, and don't have a penny overbudget. The categories are what they are. If you want to spend more, move money first. Don't overspend and put your money in later. 

    I did my fixed expenses a little differently than dakinemaui  suggests, but I fear trying to explain it makes it sound even more complicated, so I won't. You've gotten good advice on that front. Budget first for the things the price of which cannot move, and then budget for things that you have control over.

    I found that when doing the "not even paycheck to paycheck" dance, *not* having a fixed budget template was even more important. You need to be able to nimbly re-use money as you right the ship. If you've already gotten it in your head that groceries is $100/week, but then you realize that you have a nonnegotiable expense, you're likely to overspend  and/or wind up taking on credit card debt rather than trying to figure out how to hack the groceries down to $50 (it involves grilled cheese).

    You'll get there. But the fastest way there is not to cling to the idea of what a "budget" is. It is to embrace the YNAB method. 

    Reply Like 8
  • You’ve got a lot of great advice in this thread. I just want to reiterate a few things. Your thread title is “Budgeting Future Income”. That is not how you use YNAB correctly. You only budget what you have right now. You’ve got to figure out how to make that last until you get paid again. Even if that means adding debt via your credit cards in the meantime to pay your bills.

    You said you’ve been living extremely beyond your means on credit. Maybe your current paychecks can’t even cover all your bills after paying your mortgage, food, utilities, and debts. Maybe your first goal is to reduce the amount of debt you add to the total each month. YNAB can help you figure out what the minimum debt is you have to take on each month just to make it through the month. This will also have the benefit of showing you how much extra income you need to bring in from second jobs to cover the discrepancy. The next goal would be to stop the debt hemorrhaging and so on.

    Little by little you need to tackle this issue. It won’t be easy but you both have to work together to make it happen. You know that is what is best for your family in the long run. You had blinders on before but now they’re finally off and you can start to slowly repair the damage of the past. It’s not going to be easy but together, you can do this. Best of luck and continue to ask questions. We have a great community here that wants to help.

    Reply Like 4
  • Like many, I started out in a rough shape too. I had about $20, a new job, and late bills.

    You have to tighten ship and focus on the "Four Walls" ( I'm not a Ramsey follower but this makes sense). You take the money you have and say "what needs to be paid for before my next paycheck". You budget those. Little bit of fuel to get you to work. Little bit of groceries. Any bills.

    Whatever is left over gets put into the Four Walls categories - housing, transportation, food, utilities. You know that you need $2600 for the mortgage and that can't come out of one paycheck. So you put some money in that category. Your next big bill is the electric. You budget for that. Etc. 

    Repeat on the next paycheck. What bills are due between this paycheck and the next? Fill them up. Put aside the fuel and food money for this period. Fill up the four walls categories. Eventually you'll get those funded and hopefully have money left over. THEN you can look at the monthly things, savings goals, rainy day funds ... fill them up. Then anything left over goes to whatever!

    I highly recommend working to get a month ahead - where all the paychecks for this month go to next months bills. It makes a huge difference. I also recommend even if you streamline your budget you give yourself some "fun" things. When I was starting out I gave myself $25 every paycheck (2 week periods) for eating out. That let me go to Qdoba or something like it once per week.  Maybe $10 in a Redbox fund - get a couple movies every month. 

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