I know the mere mention of the word “budget” makes some people cringe, or retreat into the fetal position. I get it, the thought of feeling limited in how you can use your own hard earned money, or worse feeling guilty about how you’ve already used it is rough.
Full disclosure here, I have always loved making budgets. I love analyzing data about pretty much anything and spent countless hours setting up spreadsheets, planning and forecasting our spending. The problem is, we never stuck to it. At the beginning of the month we would set up our expected income and expenses and at the end of the month the reality of our spending would be quite different. This pretty much repeated month after month for several years.
In addition to my meticulously created spreadsheets, I played around with a fair share of budgeting software as well. Nothing ever really made a difference until I stumbled across You Need A Budget aka YNAB (Why-Nab)
YNAB is a budgeting program but more so it is a budgeting mindset.
Instead of planning and forecasting what you think your budget will be, YNAB’s approach is to focus on the money you have and prioritize that. This took me a little while to grasp but it actually makes so much sense. By first dealing with only the cash you have on hand it makes it more tangible and important to give that money a job. This leads us into the 4 rules of the YNAB system. I won’t go too in depth on the four rules because many others have already done it better than I could. Also you should check out the newly released book.
Rule #1 Give every dollar a Job
This is called zero-based budgeting ; take all cash on hand and assign it to a specific category. This was a change for us because our goal was always to have money “left over” at the end of the month without any specific job. Now every dollar gets assigned down to zero.
Rule #2 Embrace your true expenses.
Plan for the expenses that don’t happen every month. An example of this is car registration. We know it will be due every year and an is a decent chunk of money. (for us around $200) but we usually just scratched the money together the month it was due. YNAB teaches you to set aside money every month so that when the bill comes due you just have the money to pay it. This seems like common sense now, but took us way too long to implement.
Rule #3 Roll with the punches
This rule to me is what makes the YNAB method so different. It’s the life-changing idea that it’s okay to make changes to your budget throughout the month. If you overspend in a category, you simply move money from another category to cover it. Unexpected things happen and sometimes are best intentions with our spending plan don’t pan out. It’s nice to have guilt free way to “roll with the punches”
Rule #4 Age your money
Meaning how long from the time you get money to the time you spend it. The idea being that the longer you hold on to money the better. If you get paid on Friday and have spent everything on Saturday, then your money “age” is only one day. YNAB suggests you shoot for at least thirty days for the age of your money (obviously the older the better) I look at age of money as just another way of saying “live on last month’s income.”
I think what I like most about YNAB and the people behind it is that it changes the idea of a budget being restrictive and re brands it as a way to freedom. Managing money shouldn’t be difficult and knowing where your money is going is a great way to flip that switch to make your money work for you. Something I do wholeheartedly believe is regardless of the product you choose, you need a budget.