So one of the podcasts I listen to is the YNAB podcast by Jesse Meecham, the creator of YNAB. YNAB, if you’re not familiar with it, is a budgeting software (short for “You Need A Budget”) that can be used across platforms like your cell phone and computer. Anyway, in this specific episode of the YNAB podcast, called “Why Forecasting is Bad“, Jesse talked about how planning ahead in your finances can actually hurt you financially. The YNAB philosophy is that you can only budget money that you actually have, so you can’t budget it until you have physically received the money. This means that you can’t plan ahead to your next paycheck and incorporate that into your budget. This makes a lot of sense, but I am a planner, so over the years I have also used an excel spreadsheet along with YNAB so that I could plan ahead to prepare for big expenses. In YNAB you can still plan ahead, but only with money you have now. For example, it will tell you how much you need to budget this month if you want to afford “X” by a given date. For example, if you set a goal of “$2000 for Vacation by January 2019”, then it will tell you how much you need to budget each month to afford it. For whatever reason, I wanted to visually see the how and when of accomplishing my goals, so I have always used an excel spreadsheet for this function. This meant however, that I was mentally budgeting with “future money”, that is, money I don’t actually have right now.
So why would forecasting be bad? Jesse suggested in this episode that when you forecast, you can end up taking money away from your goals today by saying that you will replace it later. This struck home with me because this is something I am guilt of doing all the time. I will think something like “So I don’t have money budgeted for this [insert fancy thing I probably don’t need here], but I can use the money I have budgeted for a medical procedure/auto maintenance/etc. to get it, because I don’t need that for a while and I’ll have time to replace it.” The result of this is that I end up using the money I had budgeted for a real need, and I then have to scramble to replace the money for that real need in a shorter amount of time than I had originally planned. This sucks for 2 reasons:
- It makes me feel like I’m failing at budgeting.
- It sabotages my goals.
When I first listened to this YNAB Podcast episode I thought Jesse was crazy. “Don’t plan for the future? That’s nuts!” Now that I have had a couple weeks to think it over and to observe how it plays out in my life and finances, I realize more and more how sane it actually is. So I have decided to ditch the spreadsheet, at least for a while, and only use the YNAB budgeting software. I am interested to see if this helps me to stop sabotaging my goals.
Do you forecast? Does it help? Or hinder?
Thank you for reading,