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!
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.
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.
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.
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...
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.
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.)
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.
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.
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.