Tuesday, July 3, 2018

13 Month Budget Forecast

Long term forecasting is a crucial part of my budgeting plan.  I have a massive spread sheet that for those of you that run a business or a component of a business, will look suspiciously like a profit and loss statement. All revenue I project will come in each month is at the top, and all expenses are at the bottom. The bottom is subtracted from the top, and the end result is the surplus or negative balance for that period of time. The difference is, I add a segment at the bottom that gives me a running rate of our surplus, or in real world, our savings account.

For expenses, I plug in the quarterly, bi-annual, yearly, whatever it might be, as well as extra planed spending like vacations, furniture purchases, and home improvement. I don’t go back and adjust each spending category, but will stick in the large variances or change timing if it significantly impacted the net results. 

On the revenue side, I use my twice monthly paychecks, then add a third pay period in the two months that occurs. A recent tool is plugging in the anticipated net increase in my pay in November and December once I have met my 401K max. For DH, I put a low average, going back three years, averaging, and then using a figure that is between the average and the average yearly low. For example, if his average take home for three years was $3,000, but his lowest year average was $2,500, I’ll use $2,750 as the projection for his monthly earnings. I go back in and add his bonuses, but unless a monthly was unbelievably high or low, I don’t edit that either.

This is important for me to do as there is a certain threshold, the six month emergency fund that I do not ever want to be below. Theoretically we won’t ever be because we have other separate accounts, but I like to see our combined cash flow money market be the source of emergency funds plus our short and intermediary savings fund. I just spent a little time plugging in all the expenses between now and September 30, 2019 I anticipate. This includes funds for all the home improvements, the Roth, the expenses for the big vacation not yet paid for, travel for show choir and a few more college trips, her grad party, and what we expect to pay out of pocket for her first year of college. Using my P&L tool, if we did indeed spend and have just the revenue and expenses as I plugged in, we will dip lower than the six month emergency fund on August 1, 2019 by $18,773. Technically not yet because I plugged a full year of tuition when likely that's broken up by semester but for worst case budgeting, the full year was used.

This is still 13 months away. Like a good business, having this projection gives us a good picture of how our financial life will be, should we make no changes.  We have options, and then decisions to make. The good thing is, we have time to plan, and reprioritize and create "if this then not that" scenarios. I know my level of spread sheets would drive most people crazy, but for me, it is reassuring, or alarming so a wake up call, to plug the final month end number into the Actual Money Market row, or plug in a major expense without off setting revenue and see how the numbers change  a year from now.

We can choose to accept that this might be the reality, cross our fingers and hope the emergency fund is not needed. We can cut some spending plans or tweak the timing. We could require DD2 to go to a college that results in a much lower out of pocket family obligation. We could pay more in year one out of her college fund instead of proportionally allocating as I've planned to do. We could forgo the 2019 Roth contribution. DH may be retiring in five years and there isn’t that much time for it to accrue interest anyway. We both contribute the max to our retirement plus my pension and health savings account. The cumulative home improvement list can once again be paired back. I’m not asking for advice, or what anyone else would do, but you're welcome to comment, just sharing what my thought process will need to be over the coming year. I'm trying to play the long game.


12 comments:

  1. WOW! Your financial planning ability sounds amazing! I'm very, very far behind you. But being a believer in God, it brings to my mind the saying: "Man proposes and God disposes". In Yeddish (a germanic language) it sounds even better: "Mann tracht und Gott lacht" - meaning Man plans and God laughs. That is, God actually shapes the end of our objective.
    Luckily, I'm a great believer in God, and pray to Him to help me cope with my reality. I try to do my my best,but that's not good enough and I can't always rely on my modest means and humble abilities.

    ReplyDelete
    Replies
    1. Planning, check. Execution? A work in progress.

      Delete
  2. That is amazing. Most don't even set a budget! I do budget and do 1 year forecasts with the company income/expenses to see how many months of cash we have to pay our bills. With our personal budget I do revise things as I go along, especially if I can see one category is going to be over so I adjust others downward to stay on budget. It also works the other way if I see a bill is to be lower than expected for the year

    ReplyDelete
    Replies
    1. For work, I'm rewuired to be fairly meticulous. For home, as long as I can find blips, this has worked.

      Delete
  3. Replies
    1. Still working on making it work. We'll need to make some decisions as I don't think letting the emergency get so low is palatable.

      Delete
  4. And I thought I was a spreadsheet nerd....lolz

    ReplyDelete
  5. Hello from Idaho and hope your day is going well. I stop in from Living Rich on Cheap.
    Part of my bullet journal I have page to keep track of my money.
    Hope you have time stop in for a cup of coffee.

    ReplyDelete
    Replies
    1. I'm always adding blogs to read. I'll be over.

      Delete
  6. I think you've got this - you are amazingly organized!!! I do our budget month to month...normally even paycheck to paycheck - I'm really impressed you can get that far ahead and plan it so well.....I'm a work in progress :)

    ReplyDelete
    Replies
    1. Once the tool is set up, it takes very little maintenance. Just spreading columns. We're all works im progress.

      Delete

Join the conversation. Your respectful comments are welcome. Spam and advertising products or services without permission will be deleted, as will anything deemed hurtful to others. A change, I moderate comments older than three days to be sure I read them all and stay ahead of the spam. If you're a blogger, feel free to include your blog URL.