Money Forecasting Works When Budgeting Fails
Plus a workshop in October and a new money question of the week
My recent Tuesday posts have focused on describing actual coaching with another newsletter author here, Jennifer O. We both agreed to write about the experience from our individual perspectives, and had a lot of fun collaborating. Jennifer’s experience was a positive one, and she had an epiphany around her relationship with money that has really changed how she views and feels about her finances.
Managing cashflow is the most basic step in learning how to manage your money so that you can make progress on any goal you might have. During our session, I shared a tool with her that I have found useful, and walked her through setting it up and how to use it. I use this tool to manage my own and my husband’s finances as well. I like to call it money forecasting.
It’s not the same as budgeting.
Budgeting has never really worked for me. I don’t even use the term, especially with clients. It feels restrictive and joyless. It also looks backwards at what you previously spent, which is often a recipe for money shame. And you can’t change the past.
What’s money forecasting?
Money forecasting starts with where you are today and looks ahead. It’s all about your cash flow. Income is what you have coming in to your checking account over a given time period and expenses are where you want to direct that cash over the same time period. I like to organize mine by pay periods. Both my husband and I get paid every two weeks, on slightly different schedules. We often have other income too. Then we add up all the expenses that will be paid out over that two week period, including any money that is going toward savings or investing. What’s left after expenses are paid out gets forwarded into the next two week period.
Emotionally, it’s like a clean slate with no regrets, no shame, just intentionality.
The forecasting tool is completely customizable. Because I use a cash-back rewards credit card to pay for usual weekly expenses like groceries and gas, with a separate card for subscriptions, I don’t break these expenses out individually—I just use the card payment amount and round up to the nearest dollar.
I have a travel rewards card for making any large planned purchases and also use this card for fun and entertainment expenses too. We build these costs into our planned spending. I pay all credit card bills in full, and have moved most of these payments to the middle of the month, so they aren’t piling up on top of my housing payment on the first of the month. This smooths out my cashflow.
Money forecasting workshop on October 11th
Interested in learning more?
If you’re ready to feel more in control when it comes to your money, I’ll be offering a workshop on October 11th at 11am Pacific time/2pm Eastern time. The workshop will be about an hour. I’m keeping the cost low at $49. You’ll be able to download your own copy of the money forecasting tool, and then we’ll walk through how to use it. I’ll also stick around for a bit to answer any additional questions you might have. I’ll probably limit the number of participants to 15 max, so we have enough time for everyone’s questions as we go. Register here.
If more than 15 people register, I’ll start a waitlist and offer the workshop again within a couple of weeks. and if you need to cancel, please give me as much notice as possible so I can let the next person on the waitlist know. Hope to see you there. We’ll be using a spreadsheet but you won’t need to apply any math or calculators, promise.
Question of the week
I took advantage of my credit card's 0 percent APR promotion while unemployed so I could make minimum payments and not dip into my savings further while job searching. I now have a job and I'm ready to redo my budget, but I'm not sure what good strategies are for paying down the credit card balance before the APR goes up. What are the upsides/downsides of saving on my own and then pay in a big chunk versus paying it down over time? I have pretty good credit (and don't need to take out loans any time soon where a credit score might matter) and about 6 months at 0% left. Before being laid off last year, I paid my credit card balance off completely most months! But doing do so now would mean dipping in to the savings I'm trying to rebuild.
Congrats on the new job and it’s great that you are rebuilding your savings! It’s almost always a good idea to build up a buffer you can dip into if needed, so that you don’t have to use a credit card for an unexpected expense that then blows up your spending plan.
The pros of saving up and repaying a big chunk: You could earn some interest on your savings and that interest could be applied to paying off the card. But, how much will you actually earn—more than a few dollars a month? The downside: you could miss the satisfaction and ongoing motivation that comes from seeing that balance decrease every time you pay it down.
To repay debt, you need to know how much you have available to service the debt after essential expenses (including any savings) are paid. The money forecast tool can help you figure out what that amount is. Is this the only credit card debt you have right now? If it is, can you afford to divide the total by 6 and pay off the full amount within the 6 month grace period? If not, what will the interest rate be once the grace period is over? Also, do you have any windfalls coming up within the next six months?
Whatever you decide, consider automating the transfer of money into savings or making the credit card payment. Then you don’t have to think about about it or make the effort to follow through on your plan and actually do it.
Best of luck. Let us know what you decide and how it goes!
Martha’s workshop will be well worth the $49. Her forecasting tool was an absolute game changer for me. Thank you, Martha!