Archive for February, 2014

Forecasting in YNAB in 4 easy steps

The YNAB people are great and have created a great product.  One thing that perplexes me is their insistence against forecasting in YNAB.  I read somewhere they compare forecasting to budgeting with “play money”.   Perhaps they don’t know of a good way to teach forecasting, or perhaps it’s something that won’t work well for the majority of people (with incomes that vary month to month).  In my situation, forecasting has been a necessity.  Here are a couple of situations to consider:

Situation #1 – Anti-debt motivator

Forecasting can be a great motivator.  It was for me.  Imagine you are trying to get out of debt.  You have a decent, steady income, but always have trouble digging your way out.  That was me last March when I started using YNAB.  Within a few weeks or so, I had added up all my debts, determined how much money I had coming in each month, how much my normal expenses were, and came up with an amount that I could pay each month toward the debt while still getting everything else handled.  Once I had that monthly debt reduction amount, I forecast in YNAB against each of my debts, using the debt snowball method.  I had minimum payments I paid on a few debts, and then I put the rest of what I could afford against a “target” debt.  I forecast that amount each month in the future until each debt, one at a time, would be quenched.  I determined that it would take me until June of 2014 to pay off all of my consumer debt.  Here I am, almost a year after starting YNAB, and I’m down to a fraction of the debt I held last March.  It hasn’t been easy.  In fact, if it wasn’t for the encouragement I got through forecasting, I might have not been motivated enough to see this through.  Planning how long it would take to get rid of each debt, and then watching it happen, month after month, validating my plan has been a great motivator to completing it.

Situation #2 – Big goal planner

Forecasting should lead to planning for long term goals.  Life moves fast and you can’t always save up enough money to pay for a large expense outright, especially when it has a hard timeline.  A year ago, one of my daughters graduated from 8th grade.  She and her sister had attended a private school.  Sending her to the private high school I wanted her to attend seemed literally impossible with my debt.  So, she has been attending a public high school.  This coming June, her younger sister will also graduate from 8th grade.  The cost of sending both of them to the private high school is more than double the cost of their combined 7th and 8th grade tuition.  Add to the mix the fact that we are sending our two younger sons to the same K-8 school, and I’m looking at a major new expense.  Since I’ve been budgeting now for almost a year, my monthly category amounts are very tuned in to the real world.  I don’t often have to make major adjustments to my budget.

So, I got the numbers for the high school and started to forecast.  Could I really afford it?  I put in all of my normal expected monthly expenses based on my budget from the last year, along with the expected tuition payments for both schools.  After making some sacrifices, I can see a path to make things work.

By sacrifices, I’m not talking about planing to live off a $100 grocery category, a $0 entertainment and/or restaurant category, or anything unrealistic like that.  You can’t forecast if you want your goal so badly that you’ll put in unrealistic numbers to reach the goal.  Whenever you forecast, you must use real budget numbers that you know you can live by.

How to forecast?

First, you need a very stable income to forecast.  You can do it if you are paid monthly, weekly, or bi-weekly and the amount is very stable.  It works out best if you are fully buffered also.

Step 1

You need to figure out how much income you’ll have each month.  If you are paid weekly or bi-weekly, you’ll want to use a calendar to see how many pay checks you get each month.  If paid weekly, sometimes you’ll have 4 paychecks in a month, sometimes 5.  If paid bi-weekly, most of the time you’ll have 2 paychecks, but once in a while you’ll have three in the same month.  You’ll need to keep this in mind as you budget.

Step 2

It really helps if you’ve been budgeting for a few months so you have some realistic numbers for your categories.  Once you have that, run these numbers out a few months in your budget.  Put all of your monthly bills in place.

Step 3

On the budget screen in YNAB, at the top of each month there’s a figure labelled “Budgeted in Xxx”, where Xxx is the month’s abbreviation.  If you are budgeting for March, take your expected income for March and budget it out completely.  You should have already budgeted out your basic monthly bills, so the amount left should cover your long-term goals, rainy day fund, etc.  Watch the “Budgeted in Xxx” label and stop when that figure is equal to your expected income for that month.

Note:  You will show as Overbudgeted for the month, but that’s normal with this method.  As you deposit your checks throughout the month, the Overbudget number will return to 0.

Step 4

Go to the next month(s) and repeat the steps.  Keep watching the figure for “Budgeted in Xxx”, ignoring the overbudget amount.


You are budgeting money that isn’t really in your account.  If you are fully buffered, there is no real danger in this.  If you aren’t fully buffered, then you’ll need to be keenly aware of timing your bills to your paychecks.  To most effectively forecast, you should be fully buffered.


Now that you’ve gotten a few months pre-planned with realistic numbers, plan the steps you need to reach your desired goal.

February 3, 2014 at 11:27 pm Leave a comment

Handling a HRA Account in YNAB

The health insurance plan where I work uses something called an HRA, or Health Reimbursement Account.  Essentially, we have a fairly high deductible insurance plan, but each year they place $1000 in a reimbursement account for my family.  The first $1000 of expenses that go against the deductible (which I have to pay out of pocket) result in a reimbursement check being cut within about 30 days of the expense.  If I can go without spending the contents of my HRA in a year, the left over amount carries over to the following year.  No, that’s never happened for my family, yet.  They also have incentives that they will add to your HRA account throughout the year, such as if you go through a smoking cessation program, or a weight-loss program.  In those cases, you may get $50 or $25 added to your HRA.  Depending on how many of these incentives you do, you could have a good bit more than $1000 in your HRA account.

One issue that I’ve had with my HRA account is knowing how much is left in it.  I get a statement with each check that tells me how much is left, but my memory about such things isn’t as good as it could be.  And even when I remember things like that correctly, I have a tendency to second-guess myself.  I really want to know without a doubt.

Anyhow, I had a great idea the other day.  I recently read a YNAB blog post that talked about how to use YNAB for business, specifically Accounts Receivable.  The blog entry suggested adding A/R  as an off-budget account in YNAB.  Any time you send a new invoice out (where you expect a payment from a customer), add an entry in your A/R account for that invoice.  When the invoice is paid, in YNAB transfer the money to your main account.  You could also flag that invoice as paid using the color coding in YNAB.  This lets you always see how much you have in outstanding invoices that are owed to you.  It’s not a complete invoicing system, but I could see how this could be useful for a small business.

I realized that I can just treat the HRA account the same way.  I added the HRA account as an off-budget account to YNAB and at the first of the year, put $1000 in that account.  If I qualify for any of the incentives, I can add them to the HRA account throughout the year.  Whenever reimbursement checks arrive, in YNAB I can just transfer the money from the HRA to my checking (at the time I deposit the check).  Then, I can categorize it as income for the current month and assign it to the medical category (or another category, if I’ve borrowed from elsewhere to cover the original medical expense).  The balance shown in YNAB for my HRA account is how much I have left that will be reimbursed to me.

Tracking it this way allows me to easily keep up with the HRA money I have remaining, right down to the penny.

February 2, 2014 at 11:06 pm Leave a comment


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