Source
r/ynab•
MajorXbox

Strategy for giving jobs to surplus?

Hey all, I'm looking for some strategies on how to give jobs to my surplus income. So basically a struggle I have is working out how much surplus I have. Currently I am working on aging my money so the surplus just goes into future months. I'm at 97 days AOM and have fully funded the next 1.5 months. Now in wondering at what point should I consider putting the surplus into additional debt repayment for example. I.e. how to I do this to avoid decreasing my AOM and my ability to fund ahead? It seems like I'd just be guessing at the moment.

I did see some discussion of funding the next month and using any extra from the current month as "additional"...

Posted Jan 25, 2020, 6:16 PM UTC

210
jmtyndall•

AOM isnt really an important metric. If it were me, I would pay back debt before I had 100 days worth of money in my account . I'd probably get to 30 and then let all additional funds go to debt repayment

15
nolesrule•

Make sure you fund everything the same every month and that all your categories are sufficient to meet your needs and wants (and make sure it's less than your income) and build an adequate emergency fund. Use income received in one month to fund next month's budget (and no further.... that's part of whay you have an emergency fund)

If you're doing all of that and have extra, consider the following:

  1. Increase retirement savings until you can max out all tax-advantaged annual contribution limits
  2. Invest in a taxable account or pay down a mortgage (or both)

Finally, ignore AOM. It's not actionable, and really isn't informative.

4
MajorXboxOP•

I've got a revolving mortgage and thus at present no need for an emergency fund. So my priority is paying off the revolving credit. At present thanks to YNAB I already don't pay interest on this because my cash reserves are large enough to cover the full 20k. So it's now more about how I fund the genuine repayment category I have with any additional until it is actually paid off and the rest is just available cash.

Hope that makes sense. But it's helpful to think of not funding out more than a month!

I do find being on a fortnightly pay cycle makes it trickier as some months have three pay dates.

1
nolesrule•

I do find being on a fortnightly pay cycle makes it trickier as some months have three pay dates.

There are 2 ways to handle this.

Base your monthly budget on 2 paychecks and treat the 2 extra paychecks as a windfall that you distribute when received, or...

Put the third paycheck in a holding category and release 1/6 of it every month. base your monthly budget on 2 and 1/6 paychecks.

Personally, I do the former (I'm paid twice monthly, my wife is paid fortnightly), because we have more than enough to cover the month's budget without the extra paycheck.

I've got a revolving mortgage and thus at present no need for an emergency fund. So my priority is paying off the revolving credit.

If you are comfortable with this, then yeah, funding a month ahead using only income received in the month before is the way to go. It helps you better see how well your budget is vs. your income. If you continue to strive to push more forward then you never get away from the paycheck mentality... and it also creates more adminsitrative headaches when you decide you want to make adjustments to your budget values because it creates more places that needed to be changed.

2
esh-pmc•

I’m not a fan of budgeting ahead unless you’re specifically concerned about loss of income and, if that’s the case, I think there are better ways to prepare than to budget in advance.

Once you’re able to budget for your basic living expenses and debt repayment with some surplus, the next is to brainstorm & troubleshoot the expenses that are likely to jump out of dark corners and surprise you. You know, the type of non-regular expenses that lead to debt in the first place. Car maintenance, new tires, annual registration, etc? Gonna need a new phone or laptop in the foreseeable future? Are you ready for your SO’s birthday or niece’s bat mitzvah? Are on track to pay cash for Christmas 2020?

A strategy that works well for calculating how much of the monthly “surplus” you can actually commit to debt is to make a specific category for extra debt payment. Allocate what you can but let it sit in place and age a bit until you have a new surplus to add to this category. If the first allocation is still there, send it on and let the new surplus allocation sit and age for a bit.

2
Quintote•

It’s a depressing process, but as a homeowner, I recently went through major appliances and HVAC. I took the age (or estimated it), and googled “how long does a dishwasher last”, for example (7-12 years). I just replaced the dishwasher last year, and I know I paid about $600, so I created a “dishwasher replacement” category with a target goal of $1,000 by January 2030. I did this with the washer/dryer, roof, garage door, HVAC and more. And then I felt both empowered and broke lol.

I’m really running this like the YNAB folks tall about “wish farms”, at least for now. I’m working to get ahead a few months on budget (I know not everyone likes this, but it feels like the best thing for us). After I reach the budget buffer that makes me happy enough (probably 2-3 months), I want to start regularly funding these, but I’ll be honest, I have more of these goals than dollars. I guess it means that unless I win the lottery, in the “give every dollar a job” world, I’m at 0% unemployment :-).

4
esh-pmc•

Everyone I've ever known or worked with had more more Jobs than Dollars. It's part of the human condition, I think.

I like the full-employment analogy :-) My dollars are all fully employed and, better yet, they get paid for sitting. Right now every dollar gets 531 days PTO between being hired and when they're put on active duty.

I use the same method of researching average life expectancy of appliances, replacement costs (with a built-in inflation factor), and target goals. I tend to use warranty periods for things like dishwashers and washing machines instead of how long it might last though. The stress and overwhelm are real but the empowerment is too.

4
MajorXboxOP•

Yeah I've got all my annual expenses in there with a bit of wiggle room built in (like auto maintenance). So I feel I'm all over that aspect, it's really how do I best work identifying what is "surplus", particularly as I'm on a fortnightly pay cycle, not monthly. Which means that often months merge. But perhaps I just need to fund 2 months to allow for this (then I'd never run into the issue of a shorter vs longer month).

1
esh-pmc•

So if your “sinking funds” are well-considered, I’d recommend applying the strategy I outlined in my last paragraph of my initial reply. Think of it as a Savings Lock system. Lock as in the system of stages one goes through to raise a ship through the Panama Canal. Or a staged race where groups of racers are sent in waves. Create an extra debt payment category. Budget to it but don’t send the payment. When the next paycheck hits and you can budget another Extra Payment amount, send the first payment on and store the second.

2
MajorXboxOP•

Yea I like this idea. I'll give it a go!

1