Personal finance for cash flow modeling
June 8, 2019 3:53 PM Subscribe
Are there good tools for personal budgeting that are good at handling spiky income (I get paid bi-weekly, but also get semi-annual stock vesting) and spiky costs (childcare, property taxes, quarterly estimated taxes, etc.)?
I've used Mint for years, but its planning and forecasting tools are useless because of the un-eveness of income and costs. I can't answer simple questions like "did we spend more than we took in last month?" because most months have something unusual going on in them that either makes the month look great (i.e. stock vested, which sometimes can happen over two different months, twice a year) or terrible (it's a quarterly estimated tax month, or property tax month, or whatever).
I can predict basically everything, I just haven't yet found a tool that lets me represent what I know about how my finances work in a way that makes sense. I think the functionality I need to do this well is the ability to re-allocate costs and income across time periods to say "yes, I got my twice-a-year stock drop today but that's really income we should recognize monthly over the next six months" and the same for taxes and other big costs. I can't seem to find a budget tool that does this.
YNAB kinda handles the cost side with creating buckets for future expenses which is sort of a way to pre-pay for things, but it doesn't look like it's any help on the income side. Maybe that's enough? Do I need to be using accounting tools that are more designed for businesses? Or is this something people hire an accountant for? Or does this functionality exist in some tool?
I've used Mint for years, but its planning and forecasting tools are useless because of the un-eveness of income and costs. I can't answer simple questions like "did we spend more than we took in last month?" because most months have something unusual going on in them that either makes the month look great (i.e. stock vested, which sometimes can happen over two different months, twice a year) or terrible (it's a quarterly estimated tax month, or property tax month, or whatever).
I can predict basically everything, I just haven't yet found a tool that lets me represent what I know about how my finances work in a way that makes sense. I think the functionality I need to do this well is the ability to re-allocate costs and income across time periods to say "yes, I got my twice-a-year stock drop today but that's really income we should recognize monthly over the next six months" and the same for taxes and other big costs. I can't seem to find a budget tool that does this.
YNAB kinda handles the cost side with creating buckets for future expenses which is sort of a way to pre-pay for things, but it doesn't look like it's any help on the income side. Maybe that's enough? Do I need to be using accounting tools that are more designed for businesses? Or is this something people hire an accountant for? Or does this functionality exist in some tool?
Best answer: I don’t have a complete answer to your question but I wonder if organizing your accounts differently might help. Since you’re already using Mint, you have all your history at your fingertips, right? I have spikes in income, fewer spikes in expenses but your expenses actually sound fairly regular, just a lot of money all at once. What I found helpful to me is by rigidly converting my typical annual or semi-annual expenses to monthly expenses. A simple way is to take all of one year's income and expenses and divide by 12. There’s your basic budget.
I handle it by having more than one checking/debit account and more than one savings account. We have an “irregular expenses account” which receives a fixed amount per month and is used to cover irregular expenses like medical, auto repair, additional taxes, whatever. I have another savings fund for travel/vacation and another for family emergency. I have a fixed expenses checking account for regular monthly expenses and a variable expenses checking and debit which gets replenished weekly for our “walking around money” which includes grocery, gas, dining out, gifts, etc.
All my income (highly variable) gets deposited into a separate account but I give myself a monthly “paycheck” to cover my portion of our typical expenses. I auto transfer the same amount every month to my Fixed Expenses account. You can use any overage to top up savings accounts and save for a rainy day.
You figure out what your bottom line paycheck needs to be every month and then count that as income. Any other income, count as savings. Does that help?
posted by amanda at 4:17 PM on June 8, 2019 [5 favorites]
I handle it by having more than one checking/debit account and more than one savings account. We have an “irregular expenses account” which receives a fixed amount per month and is used to cover irregular expenses like medical, auto repair, additional taxes, whatever. I have another savings fund for travel/vacation and another for family emergency. I have a fixed expenses checking account for regular monthly expenses and a variable expenses checking and debit which gets replenished weekly for our “walking around money” which includes grocery, gas, dining out, gifts, etc.
All my income (highly variable) gets deposited into a separate account but I give myself a monthly “paycheck” to cover my portion of our typical expenses. I auto transfer the same amount every month to my Fixed Expenses account. You can use any overage to top up savings accounts and save for a rainy day.
You figure out what your bottom line paycheck needs to be every month and then count that as income. Any other income, count as savings. Does that help?
posted by amanda at 4:17 PM on June 8, 2019 [5 favorites]
Also, I tried to use Mint but just couldn’t get into it. So I have spreadsheets. One is my budget planning spreadsheet. The other is just my income which tallies every month how much I have in “reserve.” So, let’s say my paycheck is $2000 every month. If I get $4000 in one month then I can pay myself that month and have 1 month in reserve. I have a target of 6 months in reserve, and when I have reached that goal, I can allocate additional funds wherever. By keeping a separate account for this and not doing a ton of money movement other than income with that account it’s easy to see that I’ve got excess there above my reserve.
posted by amanda at 4:24 PM on June 8, 2019 [1 favorite]
posted by amanda at 4:24 PM on June 8, 2019 [1 favorite]
I used to do this in excel and then, based on the annual total of irregular expenses, I worked out how much I had to save every month just to have liquidity to meet those expenses as they arise. If possible, I’d also just save any irregular income. If you want/need that income to cover ongoing expenses I’d use it to replenish the irregular expense fund. So after building up that pot, you could reduce monthly savings to top it up and instead use the irregular income to top it up. You may have to plot your ins/outs a bit to make sure you have enough in there to cover the timing differences and any variability either in income or expenses. But it’s not really difficult, especially if you have your history. Also, it really doesn’t matter what your income/expenses are in any give month. What you’re trying to do is smooth out your cash needs.
posted by koahiatamadl at 4:30 PM on June 8, 2019
posted by koahiatamadl at 4:30 PM on June 8, 2019
I use a spreadsheet with columns for annual and monthly amounts, with formulas set up to convert between the two so I can input either amount. Then, add up all of your income/costs at a high level, using historical Mint/YNAB averages as a reference-- mine has no more than 15 categories such as salary, bonus, income tax, 401k, mortgage, property tax, needs, fun. I use the above method to determine "can I live this lifestyle on this salary". It's not something you need to do often, just when there are major changes. Once I've figured out the rough monthly amounts, I move those into my YNAB budget.
I am a YNAB devotee and you're right that it's bad at forecasting income. I also get some annual/spiky income and in my case, only a portion of it is earmarked for something specific. I typically move the rest of it into its own YNAB category, with the starting amount in the name, and then gradually transfer it to other categories as I spend or allocate it, so I can casually track what I do with it.
posted by acidic at 5:13 PM on June 8, 2019 [1 favorite]
I am a YNAB devotee and you're right that it's bad at forecasting income. I also get some annual/spiky income and in my case, only a portion of it is earmarked for something specific. I typically move the rest of it into its own YNAB category, with the starting amount in the name, and then gradually transfer it to other categories as I spend or allocate it, so I can casually track what I do with it.
posted by acidic at 5:13 PM on June 8, 2019 [1 favorite]
Best answer: I don't understand what the problem is with YNAB. Could you describe this more?
We were students for a long time and had uneven income and expenses, so we've dealt with this problem. Basically, what you do is this:
Expenses: Average your expenses out into monthly increments. If you pay $X for your property taxes every six months, then make a "Property Tax" category with a monthly expense of $X/6. If you pay estimated taxes of $Y every three months, make an "Estimated Tax" category with a monthly expense of $Y/3. Etc. This way nothing is a surprise: by the time property tax time comes around, you will have already allocated $X by saving over the last three months.
Income: If you make more than you need in a given month, you allocate the excess amount to the "Income" category for a future month. That way you're not tempted to spend it now, since it's not "extra" money, it's just money that you're making now and preallocating to future expenses.
This has worked well for our family for years (and is basically how you are supposed to use YNAB).
Sorry if I'm misunderstanding your question. If this isn't what you mean, could you please clarify what specifically doesn't work for you?
posted by number9dream at 5:26 PM on June 8, 2019 [8 favorites]
We were students for a long time and had uneven income and expenses, so we've dealt with this problem. Basically, what you do is this:
Expenses: Average your expenses out into monthly increments. If you pay $X for your property taxes every six months, then make a "Property Tax" category with a monthly expense of $X/6. If you pay estimated taxes of $Y every three months, make an "Estimated Tax" category with a monthly expense of $Y/3. Etc. This way nothing is a surprise: by the time property tax time comes around, you will have already allocated $X by saving over the last three months.
Income: If you make more than you need in a given month, you allocate the excess amount to the "Income" category for a future month. That way you're not tempted to spend it now, since it's not "extra" money, it's just money that you're making now and preallocating to future expenses.
This has worked well for our family for years (and is basically how you are supposed to use YNAB).
Sorry if I'm misunderstanding your question. If this isn't what you mean, could you please clarify what specifically doesn't work for you?
posted by number9dream at 5:26 PM on June 8, 2019 [8 favorites]
Reading over your question again, this jumps out at me:
I think the functionality I need to do this well is the ability to re-allocate costs and income across time periods to say "yes, I got my twice-a-year stock drop today but that's really income we should recognize monthly over the next six months" and the same for taxes and other big costs.
Really, this is exactly what YNAB does. Feel free to MeMail me if you have more specific questions about this.
posted by number9dream at 5:31 PM on June 8, 2019 [3 favorites]
I think the functionality I need to do this well is the ability to re-allocate costs and income across time periods to say "yes, I got my twice-a-year stock drop today but that's really income we should recognize monthly over the next six months" and the same for taxes and other big costs.
Really, this is exactly what YNAB does. Feel free to MeMail me if you have more specific questions about this.
posted by number9dream at 5:31 PM on June 8, 2019 [3 favorites]
I did this with a 'simple' excel spreadsheet. Monthly income and expenses (estimated where not known), with a bottom line showing net cash position each month, for the full year. That was my nominal position, and it fluctuated wildly between surplus and shortfall. Below that I had a row showing a fortnightly 'bills' account, funded by transfer from the gross income on a fortnightly basis. This was my tool for evening out that fluctuating balance. Providing I have the self discipline not to raid this account when it has a high balance, there is always enough money in this account to pay the regular bills (utilities, insurances, rates, etc), and periodically I adjust the fortnightly transfer into my bills account to cover the ever-increasing costs of these 'bills'.
The secret is to reserve enough of your (monthly/fortnightly/weekly) cash surpluses to cover the cash shortfalls when they occur ie managing your cash flow.
You can do this on a monthly, fortnightly or weekly basis, but though I am paid fortnightly, monthly worked for me (near enough is good enough). For me, the 'gross' above was after income tax, but if yours is not, that is just another bill to pay. Set up the right way, this spreadsheet will show just how much you spend on 'living' and how much is available for savings and playing.
posted by GeeEmm at 6:10 PM on June 8, 2019
The secret is to reserve enough of your (monthly/fortnightly/weekly) cash surpluses to cover the cash shortfalls when they occur ie managing your cash flow.
You can do this on a monthly, fortnightly or weekly basis, but though I am paid fortnightly, monthly worked for me (near enough is good enough). For me, the 'gross' above was after income tax, but if yours is not, that is just another bill to pay. Set up the right way, this spreadsheet will show just how much you spend on 'living' and how much is available for savings and playing.
posted by GeeEmm at 6:10 PM on June 8, 2019
YNAB blog has several articles on variable income. They’re a little out of date, I think, since the new subscription YNAB updates more frequently.
posted by supercres at 7:17 PM on June 8, 2019 [1 favorite]
posted by supercres at 7:17 PM on June 8, 2019 [1 favorite]
Best answer: Having now retired and therefore needing to adapt my budgeting away from a regular fortnightly wage to irregular arrivals from stock dividends, I now deal with both income and expense variability by using a second account at my bank as a kind of buffer between large but irregular cashflows, both incoming and outgoing, and my week-to-week budgeting.
Everything I receive gets dumped into the buffer account as and when it arrives, but I never use those numbers directly in my budgeting. Instead, what I treat as income for week-to-week budgeting purposes is an amount I pay myself in the form of an automatically recurring transfer from the buffer account to my main on-call account. That, plus occasional amounts I borrow from the buffer to cover unanticipated expenses, are the only way the buffer gets drawn down over the course of a year. Any such amount I do borrow from the buffer, I set up regular budgeted repayments for just as if I'd borrowed them from somebody else.
Making this work requires only that the total dividends dumped into my buffer from outside over the course of any rolling five year period add up to more than the regular amounts I'm withdrawing from it, and that the buffer always has enough in it to let it be the lender of first resort for temporary cashflow shortfalls in my main budget. The only decision I need to make to keep these things true is what my regular week-to-week internal "income" ought to be. Which reminds me, I probably need to set up an appointment with myself fairly soon to talk about a modest raise.
posted by flabdablet at 9:06 PM on June 8, 2019 [3 favorites]
Everything I receive gets dumped into the buffer account as and when it arrives, but I never use those numbers directly in my budgeting. Instead, what I treat as income for week-to-week budgeting purposes is an amount I pay myself in the form of an automatically recurring transfer from the buffer account to my main on-call account. That, plus occasional amounts I borrow from the buffer to cover unanticipated expenses, are the only way the buffer gets drawn down over the course of a year. Any such amount I do borrow from the buffer, I set up regular budgeted repayments for just as if I'd borrowed them from somebody else.
Making this work requires only that the total dividends dumped into my buffer from outside over the course of any rolling five year period add up to more than the regular amounts I'm withdrawing from it, and that the buffer always has enough in it to let it be the lender of first resort for temporary cashflow shortfalls in my main budget. The only decision I need to make to keep these things true is what my regular week-to-week internal "income" ought to be. Which reminds me, I probably need to set up an appointment with myself fairly soon to talk about a modest raise.
posted by flabdablet at 9:06 PM on June 8, 2019 [3 favorites]
Response by poster: Super helpful advice all, thank you! Sounds like I need to:
posted by heresiarch at 9:41 PM on June 8, 2019
- Consider giving YNAB a deeper look, maybe I actually can get what I'm looking for there.
- If that doesn't work, bite the bullet and do more of this manually.
- Consider a virtual paycheck/virtual bills model and find some way to trace that through Mint or my own manual accounting to make clear the underlying dynamics on a monthly basis.
posted by heresiarch at 9:41 PM on June 8, 2019
Hey if YNAB doesn’t do it for you and you decide to bite the bullet and do it manually, there’s a tool that will pull account information into a Google Sheets (or Excel) spreadsheet: Tiller.
There are a pile of budgeting and planning Tiller sheets already available (I use the basic monthly budgeting one), all of which you can modify. Or just create your own.
posted by notyou at 6:24 AM on June 9, 2019 [2 favorites]
There are a pile of budgeting and planning Tiller sheets already available (I use the basic monthly budgeting one), all of which you can modify. Or just create your own.
posted by notyou at 6:24 AM on June 9, 2019 [2 favorites]
This thread is closed to new comments.
posted by pyro979 at 4:12 PM on June 8, 2019 [1 favorite]