Rule Two: First Principles, Forward-Oriented Thinking, and Tending the Tomato Patch

Beginning Balance - A podcast by Jesse Mecham - Fridays

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Mark and Jesse continue their philosophical musings over the Four Rules by considering the essence or first principle of Rule Two -- Embrace Your True Expenses. Some people have taken YNAB's position to be "we don't forecast," but Rule Two is all about forecasting. The idea here is to forecast your expenses, while only allocating dollars you have right now to those expenses.   There's a great reason for this. The dollars you have right now are real; they exist in your bank account. The known expenses you have in the future (like your water bill) are real too, you will owe them and they can't opt out of them. So it makes sense to budget with those numbers. Dollars you will make in the future aren't realized yet, so we don't budget them. YNAB does have targets to help budgeters plan for future dollars, but they aren't budgeted until they come in.   So, Rule Two is indeed about forecasting, and the first principle of Rule Two is forward thinking. Rule Two requires you to imagine yourself in the future, paying bills that you are racking up today but have not been billed for yet, and plan for those today, in the present. Doing so helps train your mind to then consider future expenses which have not been incurred yet, so you can make better decisions about allocating your dollars today.   Mark Butler, Virtual CFO https://markbutler.com https://letsdothebooks.com   You Need a Budget https://www.youneedabudget.com