Buffering vs Zero-Based Budget

Piggybacking on some additional threads at the moment.. Newbie to YNAB.

I asked a question a few hours ago regarding AOM and paying 1st of the month bills, since we currently are paycheck to paycheck. If you feel so inclined, here is the post

The answers I received were helpful, and were in regards to buffering, instead of focusing on AOM. Then I realized, I currently budget with a "buffer" of sorts, a carry-over. Albeit, it's NOT a month's worth by any means, more like a few hundred dollars usually. Something like this:

        incoming  | mortgage | daycare | internet | gas | fun spend | LEFTOVER

Jan 1    +$5000 | -3000 | -1000  | -200 | -200  | -500  | 100

Jan 15  +$100(leftover)+5000 | -3000 | -1000 | -200 | -200  | 500                  

etc.....  (with much more columns/rows and nice colors). 

But now this has me thinking, isn't this the opposite of zero based budgeting? If I created a category in YNAB for "next month's bills", that's essentially a carryover of funds. And while that money technically has a job (next month's bills), it still seems like it is somewhat 'cheating' on the YNAB system? Thoughts? My brain is so foggy right now from watching and reading so many articles about YNAB the past few weeks, I can't seem to think clearly! 

25replies Oldest first
  • Oldest first
  • Newest first
  • Active threads
  • Popular
  • One day the amount left over will be enough for an entire month. All the money you receive during that month will be for next. From then on, ALL the money you receive in januari can be given jobs in februari. Some jobs are for the distant future, some for special occasions, but none ‘left over’, like you wrote above. Money for march will come in during februari.

    Like
  • It's zero based because you are still only budgeting with money you have. You are just giving some of that money a temporary job of sitting there till next month.

    Would you say that it's not really zero based by having an emergency fund? That money just sits there waiting and waiting and waiting for an emergency that may never happen.

    Like 6
  • The 'LEFTOVER' is your net income gain/loss. It will not always be positive as you sometimes have to spend (way) more than you earn that month. Hopefully, by then you have some true expense categories to cover those expenses.

    You could put it in a category named Leftover, Next month's bills, Buffer, whatever you want. It's commonly talked about as a buffer category.

    As it slowly (or not so slowly in three paycheck months) builds up, and is raided at times, it will at some point be enough to cover at least part of next month's bills. Then all the bills next month. Then all the month - and then you're there - you're buffered. From then on, you only ever (hopefully) need to budget once per month, and you have broken the paycheck-to-paycheck cycle. The paychecks aren't used in the month you receive them. Helpful when getting several paychecks monthly I would assume. 🙂

    It's more visual if you wait until you have a full month's expenses in your whatever named buffer category before starting to fund next month, but you may of course start partly funding next month earlier than that.

    Like 1
    • Moohouse I also just want to say that the net gain/loss of income vs. spending is not always the same as the amount you put in the buffer category. Some months have had had large payments that were saved up for, and that income/expense report shows negative, but we still put money in the buffer category...

      Like
      • Moohouse
      • Software developer
      • Moohouse
      • 1 yr ago
      • Reported - view

      Move Light Sound Life This is true, I probably wouldn't pick buffer as my first and only saving goal. I got a bit single minded there!

      Still, you could raid your buffer when s*** hits the fan. Or any other available funds on the budget.

      Like
    • Moohouse Yes, and don't forget True Expenses! Those are what I meant for large payments. Definitely save for those separately than the buffer. You've got this!

      Like 2
  • Why not allocate that left over month to next month?  I have never used "buffer categories" to hold next months income, I simply move to the next month and allocate the left over income to my highest priority category.  After you do that for a few month, you will see that some categories are fully funded for the next month already, and eventually you can sneak up on that fully funded month nirvana.

    when you get to that position, using Goals to set up templates for the month are amazing as you can simply select the category you want and use the Quick Budget option to allocate funds automatically based on your goals.  Game changer...

    Like
  • mhornak said:
    Why not allocate that left over month to next month?  I have never used "buffer categories" to hold next months income

     Stealing From the Future. It's a thing, it's bad, and it can only happen if you have money directly budgeted in future months, rather than using an intermediary category.

    Like 2
      • bigGolfGuy
      • software architect & technologist
      • mhornak
      • 1 yr ago
      • Reported - view

      nolesrule - can you explain what you mean by Stealing from the Future?

      We budget all of our income at this point in future months, Feb and March are fully funded, and any income left in February, starts funding April.  That money is there and I'm not going to use it for anything other than the month it's allocated to.

      If I have planned correctly, I should be pretty close to my Goals (based on Quick Budget history, etc.) and have to rarely account for issues that I can't handle in the current months funds.

      Like
      • WordTenor
      • Can we agree that goals are dumb and immature? Sure.
      • WordTenor
      • 1 yr ago
      • 2
      • Reported - view

      mhornak If you are budgeted in March, and February is at zero, you can increase your February budget amounts by any number up to the amount budgeted in March without seeing any problem on the February screen. If you’d like to see it in action, just take any category in February and increase its budgeted number by a few hundred dollars. Then click over to March and you’ll see you’re overbudget. But since you didn’t use more money than you had total, the problem shows up only in the farthest month out. 

      There is a sign on the February screen but it is maddeningly subtle—your “budgeted in future” number will change in the header. 

      For this reason and others, it is recommended by users that if you budget forwrd by any months, you only budget forward one month and hold any excess in a holding category. And most users actually hold *all* future funds in a category because it forces the header to account for discrepancies between the months. 

      Like 2
      • bigGolfGuy
      • software architect & technologist
      • mhornak
      • 1 yr ago
      • Reported - view

      WordTenor - ahh, yes  the red indicator in the header for Budgeted in the future.  Gotcha, yeah, that really comes into play if you are adjusting budget numbers, not moving money around.  I don't hit that too often.

      Like
      • WordTenor
      • Can we agree that goals are dumb and immature? Sure.
      • WordTenor
      • 1 yr ago
      • 4
      • Reported - view

      mhornak The red indicator is there because you are using the Toolkit. It doesn’t exist in the base software, making SFTF even more insidious. 

      Like 4
      • bigGolfGuy
      • software architect & technologist
      • mhornak
      • 1 yr ago
      • 1
      • Reported - view

      WordTenor and dakinemaui - I am going to experiment next month with not budgeting future months as each paycheck lands, but creating a buffer "Income for Next Month" category. 

      What are the YNAB4 "like" steps (I have never used YNAB4, just read all the threads about this topic and your passion for it...) to do this?

      1. Create a Category called "Income for Next Month".
      2. An income transaction for March hits, categorize it to "Income for Next Month"
      3. Repeat for each income transaction in March.
      4. On April 1st...
        1. From the April Budget
        2. Zero "Income for Next Month"; should move to "Inflow: To Be Budgeted"
        3. Select all my Categories and Quick Budget / Underfunded to budget the month (I use goals so it's all templated out)
      5. I would then tweak anything I have possibly noted within the month.  I also compare my spending from previous months to see if I need to adjust anything.

      Now there was reference to going back to the income transactions in March and re-categorizing them, wasn't sure what this was about, something with the Income-Expense reports?

      The SFTF situation would be avoided b/c if I change the budget amounts now, the impact is immediately shown on the TBB with a negative red in the current Month, correct?

      I'm going to give this a try to see how it works out compared to how I have been doing it for years now with just budgeting in the future...

      TIA!

      Like 1
    • mhornak #4 -- on April 1:

      1. Search for Income for Next Month in All Accounts, Select All, Edit | Recategorize as To Be Budgeted

      2. Switch to April's budget and budget as you wish

      You should match the release of funds to how you put them into the INM category so reports are not skewed. If you categorize upon income arrival, then you need to recategorize to use those funds. OTOH, if you manually budget to INM upon income arrival, then you need to make a budget manipulation to release (either delete the budget entry in March's area or negative-budget in April's).

      I prefer the categorization approach since it is typically automated. However, I'd recommend one of the budget approaches for anyone still needing some of their income in the current month.

      Lots of ways to do this, with various pros & cons to each.

      Like 1
    • Technically, what I've described allows SFTF after the recategorization. It shouldn't matter because you shouldn't be messing around in March's area anyway. Just be aware it's possible if you do want to cover late-posting overspending.

      That said, if you budget income to INM as it arrives and negative-budget the INM category to release it, SFTF is prevented entirely. That's just too much work for me, and I feel the risk has been sufficiently mitigated.

      Like 1
  • WordTenor said:
    Then click over to March and you’ll see you’re overbudget.

    In practice, you may not "click over" and see this until March actually arrives -- that is, after you've spent those funds based on February's budget.

    On a more mundane note, it's simply more work to flip screens and budget a subset of categories every time income arrives throughout the month with the "direct to future" approach. I wouldn't do that even if SFTF wasn't a thing. (And it isn't with the Toolkit Extension installed, since that provides an indication funds are double-booked.)

    Like 2
  • When I first tried YNAB back in 2011 one of the rules was "Live on last month's income", not "age your money", so it's definitely NOT cheating on YNAB.  I think they probably changed it to be less intimidating of a goal for newbies, but it's still a background goal, especially for those on weekly or bi-weely paycheck cycles.  For me, I get paid monthly so I never have to worry about timing my checks and my bills, I can set everything on autopay and budget once after my paycheck hits my account on the last day of the month.  For me a buffer is a bit of an unnecessary luxury, but if I were bi-weekly, I'd prioritize building at least a one paycheck buffer so I can budget everything at the beginning of the month.

    Like 2
  • mhornak said:
    The SFTF situation would be avoided b/c if I change the budget amounts now, the impact is immediately shown on the TBB with a negative red in the current Month, correct?

    Yes, that's how it's intended to work. Put it this way: the current month's TBB is guaranteed to be accurate only when the Budgeted In Future header entry shows $0.

    Like 2
  • These aren't contradictory. 0 based budgeting is budgeting your income down to zero. So all your inflow doesn't stay at inflow but is budgeted to categories (groceries, emergrency savings, next month expenses,  bills, non monthly expenses, vacation,  extra funds, etc) until you don't have anything left in inflow. That's zero based. Buffer is ensuring you aren't living paycheck to paycheck by having approximately one months of your income saved up so that you are living off of last months income. This month' income, you will save for next month.  With YNAB online it is pretty simple. I have a category I call "Next Month Income Buffer".   Initially, ( long time ago when I was still paycheck to paycheck), I would budget each month into this category until I had enough to equal 1 month salary.  Now since I've been in buffer mode for years this isn't an issue anymore. Now, this is what I do:   When I get income this May, it comes in as inflow. I budget all the inflow immediately to "Next Month Income Buffer" category.  By end of month, I have a month's income in this category.  1st of June, I take the money out of "Next Month Income Buffer" category which should be approx 1 month income, and budget it all down to zero (zero based budgeting). I budget it to my bills, groceries, no monthly expenses, savings, etc, until it is all gone.  I made this money in May but budget it towards expenses in June.   Any income I earn in June now is budgeted to "Next Month Income Buffer" again. In July 1st, I remove the funds from "Next Month Income Buffer" and allocate those June funds to  July expenses budgeting them down to zero.  That's how I do it.  Zero based budgeting on a buffer.  

    Like
      • Superbone
      • YNAB convert since 2008
      • Superbone
      • 1 yr ago
      • 2
      • Reported - view

      Slate Blue Guitar You can save yourself a step by creating recurring paycheck transactions that directly budget your income to your next month category and skip the middleman (TBB).

      Like 2
    • Superbone That's a good idea.

      Like 2
    • Slate Blue Guitar And then, when you are ready to budget that next month (after you've reconciled), go to All Accounts, search for anything categorized to that Income for Next Month category, select all, and recategorize to TBB. 

      That way your reports are correct while saving yourself steps. :) 

      Like 3
      • Superbone
      • YNAB convert since 2008
      • Superbone
      • 1 yr ago
      • 2
      • Reported - view

      Slate Blue Guitar  We can’t take credit for it. dakinemaui perfected the process a while ago. It sounds like you figured out the process naturally on your own. It’s the closest way to replicate YNAB 4’s Rule 4 and income for next month system.

      Like 2
    • Superbone a perfect system would automatically release the funds, too. But it's... usable. 🙂

      Like 5
      • Superbone
      • YNAB convert since 2008
      • Superbone
      • 1 yr ago
      • 2
      • Reported - view

      dakinemaui Well, yeah, but it's as close as we can get in the current incarnation of YNAB. I have a little bit of optimism based on what Matthew has hinted at that we might see improvements in the future.

      Like 2
Like Follow
  • 1 yr agoLast active
  • 25Replies
  • 971Views
  • 12 Following