Starting up with large savings: Distorted view of ongoing cash flow

I'm back with YNAB after a long hiatus, and relearning some of the core concepts, so apologies if this has been answered elsewhere:

How do you ensure that a large savings balance, doesn't distort your real monthly case flow.

As my wife and I have currently constructed our budget, we have funded all our January priorities (Immediate, True Expenses, Quality of Life) , and have enough left over to do the same for February.  I'd quickly note this isn't because we're super high income, or have been especial frugal. We've wasted a lot of money over the year (why we're back with YNAB), we just were the beneficiaries in late 2019 year of a one off financial windfall.

After February, that money will be fully allocated, and we're back to living on our monthly income.  Is there any way to easily tell that we're ok for Rules 1 -4 in March at this point - or is that going to be an either 🙂 or 🤢 reveal in early March?

If our basic approach here is wrong, happy to hear that as well.

Thanks!

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  • I know how you feel, I’m usually in the same situation.  There’s always the net worth graph, but the much better way is to not budget any of the current month’s income until next month.  Make a category and put all Jan. Income in it and then release it at the end of the month to budget in Feb.  If you can consistently do this every month you will know you’re living within your means and even saving more to boot.  We call this classic rule 4, Live on Last Month’s Income.

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    • Annieland Thank you very much, that's really helpful! 

      I guess the category would be something like Current Month's Income? 
      And would you suggest putting it under Quality of Life, or should it be its own category group?

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      • Annieland
      • YNABbing every day since 2009!
      • Annieland
      • 8 mths ago
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      WhoMovedMyCheese No, we usually call it “Income for Next Month” or something to that effect. It’s to remind you to keep your mitts off it now :). 

      I don’t personally use the “stock” categories YNAB comes with. Everyone does their budget differently and there are recent threads where people post theirs. Feel free to customize as you go. My category groups are more based on general life area, like Transportation, Food, Housing, etc.  I have a group for “Savings” which has assorted categories for emergency funds, income replacement, investments, etc. and that’s where I have my next month category and a small (couple hundred) holding category for anything that slips through the cracks this month.

      You’re off to a solid start!  Keep at it, the software really is simpler than it first appears.  Lots of great advice to be found here too!

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    • Annieland I just set this up, too. Thank you for the idea!

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    • MsTJ
    • YNAB has given me back my future
    • Believer_in_YNAb
    • 8 mths ago
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    I just worked this out for myself.  Instead of tracking overall totals, I'm now planning on tracking by month.  What have I budgeted this month (income)?  What is my activity (expenses)?  The result is what I did this month. Hoping this will give me a better monthly picture.  Hope you find what works for you.  

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  • I suggest you don't do February right now. Put the extra you have in an Income Replacement or Emergency category. All the income that arrives in January can be stashed in a holding category called Next Month's Income (or whatever). When you've received it all, move funds from the NMI category to TBB and budget February on your standard monthly salary.

    To get a truer picture of your eventual on-going demand, you can use some of that Emergency money to "catch-up" on your True Expense categories. If you have an annual expense, for example, the long-term budget value will be 1/12 of the total. However, if the first outflow is due 2 months after you start using YNAB, you can put 10 month's worth of money in the category in that first month. This lets Feb. (and thereafter) use those "nominal" budget values. Do similar for the other recurring expenses; e.g., a quarterly expense due next month would put 2/3 of the expense amount in the category now, leaving the nominal 1/3 (=4/12) of the expense to be funded monthly moving forward.

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    • dakinemaui Hi @dakinemaui  appreciate all your help to date.  I moved the money from my Next Month's Income (holding) category, to TBB, and gave every dollar a job.  Question - I now have a large negative budget balance in the Next Months Income category...did I miss a step?

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      • dakinemaui
      • dakinemaui
      • 7 mths ago
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      WhoMovedMyCheese Depending on how you emptied the NMI category you might have a negative budget value. That just means more came out than went in so far this month.

      The "release" should match the manner in which you put money in the category. If that was a budget entry, then this negative budget entry to release is appropriate. Do note that another option is to simply delete the budget entry that out it into the category.

      OTOH, if you directly categorized to NMI in the income transactions (my preference since it can be automated), you should bulk-recategorize as TBB to release funds.

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      • dakinemaui
      • dakinemaui
      • 7 mths ago
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      WhoMovedMyCheese To be specific, you should not have a negative Available value in the NMI category.

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  • Thanks everyone for the help, really appreciate this!

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  • It's not a windfall per se, but we get paid every 2 weeks, so twice a year there is a 3rd paycheck during the month.  I spent the first year 6 months getting our monthly expenses under 2 paychecks a month.  As it is expected income, but 'extra' so to speak, I use it to bolster any lagging true expenses.  So as not to waste it, I spend some time thinking, what do I want to do with this extra money?  I use a note app and log how I want to use it. 

    The first 3 check month after starting YNAB helped us get a month ahead so we could life off of last month's income.  IMO, this is a game changer, especially at the beginning of YNAB when YNAB broke is very much a thing and I felt like I couldn't afford to fund our true expenses like I wanted to.  The last 3 check month was November, the next May.  November I added to the Christmas fund because I forgot the kids would like to purchase gifts for one another.  I added a chunk to mortgage so I can pay extra towards principal every month.  I put a chunk in our car replacement category because our oldest car is in college.  I put a chunk in our vacation fund because I started budgeting a year ago and our big vacation is about 2 years worth of monthly contributions, so it's a little behind.  A chunk went into hobbies, because my new hobby of sewing was being used to make presents for family.  A chunk went into wish farm because my spouse wants very much to repave our driveway.  Any extra above that went to plump up categories.  This May I will again use the 3rd paycheck for vacation, extra mortgage principal, replacement car fund, paving, and probably the category New Floors because we after we replace the windows this fall, we want to repaint and replace flooring in all the bedrooms so my daughter can get her own room eventually.  Any extra above that will likely go towards saving for a new mattress because ours is about 10 years old.  

    If you get a considerable windfall, you can always sit on it until you know what to do with it.  I sat on an inheritance for about a year because I didn't want to blow it and have nothing to show for it later.  We used part of it to pay for a financial advisor, who was the one to turn us onto YNAB.  She advised how to best use it (for us a combination of invest, put into our kids' college funds, and use as a income replacement emergency fund).  Part of it was to update our wills and trusts because that's a thing that I think I should do as a parent and vaguely responsible type adult.  

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