YNAB for future planning

One thing the YNAB classes espouse is to only put money into YNAB when it arrives in your account.  They say putting money into your budget before it arrives is playing with “monopoly money”.  For people who have irregular incomes, and if you aren’t fully buffered, I would agree that putting things into YNAB ahead of when money shows up in your account might lead to some bad things happening.  However, if you have a very regular income and are fully buffered, doing this can be helpful, if done wisely.

I’ve been doing this to varying degrees since I started using YNAB.  I know what my income is going to be (within a few cents) each month, so I’ve put it in a month or two ahead of time so that I can “run things out” to see what would happen.  This type of planning lets me see when various debts (that are part of my debt snowball) will be paid off, and lets me play various “what-if” scenarios.  For example, mid-year I had to pay an $1800 fee for a private school by a certain deadline.  My planning had me saving up that money, but two months after the deadline, when a $150 fee would be added.  I found a 0% interest method that I could borrow the $1800 to pay it off by the deadline, then paid off the $1800 two months later, saving me $150.  If I hadn’t have been planning this out, I might have missed that $150 savings opportunity.

As I mentioned in an earlier blog entry, I recently found out that I’m going to a different pay frequency.

I’m currently (as of this writing), being paid monthly.  I’m paid the same amount (within a few cents) each month, very near the end of the month.  This works out perfectly for YNAB because I’m essentially fully buffered by default.  (Being fully buffered means that you are paying for the current months expenses with last month’s paychecks, in case you don’t know YNAB.)

This December will mark the last paycheck I get this way, which will cover all of January’s spending.  My first bi-weekly  paycheck will cover Jan 1st through 14th, but it will not arrive until the 21st.  This check will be for February’s spending.  My 2nd paycheck arrives the first week of February, which will also be for February’s spending.  It looks to be April (the first time I get three checks in a month) before I will be able to catch up, getting me to the point that I’m fully buffered again.  (The 2nd check in March and 1st check in April will be for April’s expenses, and the 2nd and 3rd checks in April will be for May expenses.)

In YNAB, I entered in all of my expected paychecks from now until next September, and I copied my current expenses out through that time frame.  I also adjusted the category spending to account for things I expect to happen.  Sure, I don’t know exactly what my bi-weekly check will be yet, since it has taxes and other expenses taken out before I get it, but I estimated it by taking my current monthly net pay, multiplying by 12, then dividing by 26.  The real number should be close enough to what I’m using that it shouldn’t be difficult to adjust once I find out the real bi-weekly net pay amount.  I’m also using estimated numbers for a bonus, and I used Intuit’s website to estimate what I’ll get back on my taxes.  This is where it feels like I am getting close to “monopoly money” territory, but I’m using the best estimates I have available.

There is the issue of living off of about 7.7% less money each month (for 10 months out of the year).  I was able to handle this largely by not funding my Christmas, Homeowners Insurance, and Property Tax categories until the 2nd time this year that I’ll get three checks in the same month, September.  At that point, I can fully fund most of these three categories.  All three of these Rainy Day categories fall after September, so it works out from a budgeting standpoint.

Using YNAB to plan in this way helps me feel confident that I can do something that I was very unsure about.  You see, I have three children attending private school now, along with one in public high school.  She’s in public high school because we couldn’t afford to send her to private school this year.  By going through this exercise, I feel fairly confident that I can afford to pay the various registration fees for the two private schools by their respective deadlines, and I can afford to pay the tuition for both schools while keeping current on my other bills.  Of course, if my bonus comes in lower than expected, then my entire plan could be in trouble.   I should know that before the March registration deadline, though.

If everything goes according to plan, I’ll pay off the last of my consumer debt on June 2nd, and that snowball money will lighten my burden heading into the next school year.