We’ve all been there—sitting down with our budgets and getting excited about future income. Maybe it’s a bonus check, a tax refund, or just your regular paycheck. It’s tempting to start allocating those future dollars to upcoming expenses and exciting plans. But here’s the thing: budgeting with money you don’t have yet can be a slippery slope, especially when you start spending it before it arrives. Let’s talk about why in personal finance it’s crucial to only budget with the money you have right now, acknowledging that desire to plan ahead while understanding the risks of counting on future funds.
The Allure of Future Money
It feels so good to look at our future income and start dreaming. "When I get paid next Friday, I’ll cover bills, and with that bonus in December, I’ll pay off these other purchases." Planning ahead like this is natural—it’s part of being financially responsible, right? Well, yes and no. While it’s great to have a plan, the problem arises when we start counting on that money before it actually arrives and being able to make decisions in the present when you've mixed it with the future.
The Risks of Counting on Future Income
Life is unpredictable. Even if you have a steady job and everything seems secure, things can change in an instant. Your paycheck might be delayed, your bonus could be smaller than expected, or an emergency might come up that eats into that expected income. When you’ve already allocated those future dollars to specific expenses, you’re setting yourself up for a potential financial crisis if things don’t go as planned.
The Domino Effect
Imagine you’ve planned to use your next paycheck to pay off a credit card bill. But what if that paycheck is delayed? Suddenly, things you've spent on or earmarked are now in jeopardy. Or perhaps you’ve allocated your entire bonus to holiday gifts you already purchased, but an unexpected car repair wipes out those funds before you even see them. Now, you’re not only disappointed but also scrambling to cover those expenses. This domino effect can create a stressful financial situation that could have been avoided by sticking to budgeting with the money you actually have. Budgeting with future money could lead to spending money you don't have yet, which might turn into to debt and a cycle of pain.
The Safety of Budgeting with Current Funds
Budgeting with the money you have right now is like building a financial safety net. It ensures that you’re only committing to what’s already in your possession, avoiding the pitfalls of relying on uncertain future income. It also makes your decisions about the here and now more clear because you aren't getting ahead of yourself and putting future-you at risk. Said another way, finding the money first will keep you more grounded, even if it means waiting a little bit. Here’s why this approach is so powerful:
Financial Stability
When you only budget with current funds, you create a stable financial environment. You know exactly what you have and can make informed decisions about where it should go. There’s no guessing or hoping—just planning based on reality. Creating this habit of only working with what you have is different than understanding if your overall plan is feasible. People want to know if everything they've signed up for each month has a reasonable expectation of being covered by what they typically bring in. And that is a perfectly fine exercise to go through to see if there's broader gaps in your plan. However, the specific stability we're after is bridging the theoretical with the day-to-day actual. When dealing with the actual spending, it's crucial to look at what you have presently to guide your decision. Then, we can see if there's a mismatch between what we thought would happen and how it transpired, and what we should do differently without risking our current circumstances.
Peace of Mind
There’s a unique peace of mind that comes with knowing your budget is grounded in actual, available money. You’re not at the mercy of unforeseen events because you’ve only committed to what’s already in your bank account. This reduces stress and allows you to navigate your finances with confidence. Using credit cards is still fine, but you're not using them as a way of fronting yourself the funds. Instead, you're using them like a debit card. YNAB facilitates this wonderfully.
Flexibility
Life happens, and sometimes expenses pop up unexpectedly. When you’ve only budgeted with your current funds, you have the flexibility to adapt and reallocate money as needed. You’re not locked into a plan that depends on future income, giving you the agility to handle whatever comes your way.
The YNAB Advantage
Using YNAB (You Need A Budget) can transform your approach to budgeting by emphasizing this principle of only budgeting with current funds. YNAB’s method encourages you to give every dollar a job, but only the dollars you actually have right now. This shifts your mindset and helps you build a more resilient financial plan.
Real-Time Budgeting
With YNAB, you’re constantly working with real numbers. The software encourages you to assign every dollar a job, ensuring that your budget reflects your actual financial situation. This real-time approach means you’re always working with what you have, not what you hope to have, and keeps you from sliding down that "infinite money glitch" slope. Because if you want to work with money you expect to get next month today, what's to keep you from utilizing what you expect to get next year today?
Building a Buffer
One of the key goals in YNAB is to get at least a month ahead with all your expenses. This means gradually creating a buffer so that you’re always using last month’s income to pay for this month’s expenses. It’s a powerful way to break the cycle of living paycheck to paycheck and ensures you’re always budgeting with money you have, in addition to allowing you the ability to budget as far in advance as you can or want with what you have.
How a YNAB Budget Coach Can Help
Navigating the shift to budgeting with current funds can be challenging, especially if you’re used to planning with future income. This is where a YNAB budget coach such as Budget Better can be incredibly valuable. A coach can help you:
Understand the YNAB Method: A budget coach can guide you through YNAB’s principles and help you implement them effectively in your own financial life.
Create a Realistic Budget: With personalized support, you can develop a budget that’s grounded in your actual income, reducing the temptation to rely on future money.
Build Financial Resilience: A coach can work with you to build a financial buffer, helping you move away from paycheck-to-paycheck living and towards a more stable financial future.
Stay Accountable: Regular check-ins with a coach ensure you stay on track and make adjustments as needed, fostering a habit of budgeting with current funds.
While it’s tempting to plan ahead with future income, sticking to budgeting with the money you have is a powerful strategy for financial stability. By embracing this approach, you avoid the risks and stress of relying on uncertain future funds and getting ahead of yourself. Using tools like YNAB and seeking the guidance of a budget coach can help you navigate this shift and build a more resilient financial plan. Remember, effective budgeting is about making the best decisions with what you have right now. Schedule a free chat to talk about how we can work together!