YNAB BLOG

Keep Monopoly Money Out of Your Budget

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A couple of my recent posts have mentioned Rule 1. Yesterday’s sparked a conversation with a good friend who told me he’s been breaking Rule 1 without even realizing it (which I’ve also done).

He gets paid twice monthly, on the 1st and 15th, and he’s not fully buffered yet (meaning he isn’t able to live on last month’s income).

Rather than budgeting twice per month (one budgeting session for each paycheck), he estimates his expenses for the entire month when he gets his paycheck on the 1st.

By the way, Jesse tells me that 80% of YNAB users get paid other than monthly, so my friend’s situation – and the way he handles it – are normal. Less than ideal, but normal.

Another way of saying “he estimates his expenses for the entire month” is “he budgets money he doesn’t have.”

Which turns his whole budget into Monopoly money. If any of your budget is fake, all of it is fake.

Things Fall Apart When You Break Rule 1

When you break Rule 1, the other three rules break down, and YNAB becomes a simple expense tracker instead of a finely-tuned money happiness machine.

How so? Because Rules 2, 3, and 4 are extensions of Rule 1:

“Estimating” detaches your budget (and spending) from your real account balances (in checking, savings, etc), creating undesirable outcomes:

  • You always have to check your bank account balance before making a purchase.
  • You’re missing out on the magic expense reducing-power of a real budget (because your brain knows those category balances are made up, and don’t have to be honored).
  • As your budget becomes less and less meaningful, you have less reason to use it, and you run the real risk of quitting.

Make a Fresh Start

First of all, don’t feel bad. Feeling guilty about your money is a waste of energy (No shame, no blame – right?).

Second, consider a fresh start with your budget. I don’t know how many times I’ve fresh-started YNAB – could be a dozen or more.

After fresh-starting (which, you might not realize, is an actual feature in the software under the “File” menu), resolve never to budget money you don’t have.

When money enters your life, assign it to those jobs that need to be done before you get paid again. In the unfortunate event you have to use a credit card to get by (we’ve all been there), you’ll be doing so with full awareness.

For those of you paid weekly or twice monthly, use your category names (or the notes feature in YNAB) to estimate your bills and remind yourself of their due dates. (I just made this change myself.)

Bottom line: “Available to Budget” is a sacred number. As long as you treat it accordingly, you’ll be using YNAB to its full potential.

78 Responses to “Keep Monopoly Money Out of Your Budget”

  1. captainyesz

    Only reason I don’t fresh start is I want to see the trends and graphs (no longer! We only have bar graphs!) of my spending historically which is what makes YNAB so useful…

    • David Giesberg

      Agreed! I think I’ve found a way to get pretty close to a fresh start without hosing historical spending data:

      1. Zero all budgeted amounts for this month and the previous month
      2. Then go back to the previous month and Fill all empty budget cells to bring Balance to 0.00

      I had to do a little bit of fiddling with my hidden categories to square everything back up, but ultimately, I was able to get it to where my Available to Budget for this month minus the Outflows that were already entered for this month equaled my Budget Account total.

      Here’s another step to make that even clearer:

      3. Go through each category and budget an amount equal to the outflow for that category. The Available to Budget value should equal your Budget Accounts total (the amount of cash you actually have in the bank that’s not been spent/accounted for elsewhere)

      Having done this, I think I’m back in sync and have a fresh start without losing any of my spending data.

    • Minda

      You could use the ‘balance to 0.00′ button in the quick budget options. It’s pretty much a fresh start without losing history.

  2. Megan

    I do understand why this is a good concept but what about those cases when every month has the exact same income (salary)? I’m new to YNAB and am afraid I’ll forget something when it comes to the end of the month–I want to be able to plan, you know?

    • mark

      Hi Megan – welcome to YNAB! I’m not an official YNAB teacher (just the dude that writes on the blog), so the first thing I’d say is you ought to check out our live classes. They’re excellent.

      From my personal perspective…

      The point you’re making is one more reason NOT to budget money you don’t have.

      By budgeting money you don’t have, you’re giving yourself a good reason not to check in on the budget often. I look at my budget every day, and because all my regular bill amounts and due dates are noted in the category names, I never forget anything.

      • Megan

        Good point. Just signed up for the Introductory online course. :) Thanks!

      • Megan

        I went back and broke down our categories further…complete with 1st or 2nd ck or amounts for 1st ck/2nd ck. My husband said, “This is great–now I know how much we have left.” :) It hadn’t really occurred to me how to make it work with just the one paycheck each month. Thank you!

  3. Sarah

    So we have income on the 1st and 16th. I pay our mortgage on the 16th for the following month. On the 1st I name mortgage money in the amount of half the mortgage, relying on the 16th income for the second half. Would you consider that playing with Monopoly money? Or would it be considered 1/2 way to getting to Rule 1?

    • mark

      If I understand you correctly, you’re only budgeting money you already have (half the mortgage payment on the first, other half on the 16th).

      That’s exactly what I’m advocating, so in my opinion you’re NOT playing with Monopoly money. As far as I can tell, you’re following Rule 1 perfectly.

  4. Marily

    I budget money we don’t have all the time. Actually, we do follow rule 1 and we spend last month’s income. But still, I like to see what next month might look like and sometimes 2 months ahead. Our income is salary, so it’s very predictable. Of course when we get to that month we look at the budget again and fine-tune it, to make it more “real” once we are actually talking about money we do have. It helps me to see a bigger picture to do it this way.

    • mark

      Sounds like it works fine for you.

      Playing devi’s advocate, if things are so stable, why bother with forecasting?

      • Marily

        I am going to guess that all successful companies forecast. It’s not a precautionary measure, it’s more that we have certain financial goals in mind and it’s nice to be able to see a little farther ahead at what progress we might be making in the next couple of months.

      • mark

        Gotcha – so it’s something that helps you see when your savings goals will be met. Because you’re someone whose budget is dialed in, and who isn’t making daily consumption decisions based on the forecast, sounds great!

      • MendedSlinky

        Exactly, this seems to fit in with how I work. Like Marily I also budget 1-2 months ahead. I’m fully living off the buffer. I mostly use it as my playground. I make my budget for next month. That months is in the negative obviously. So my game is to try to get that number as close to zero as possible. I’m constantly clearing it and budgeting it. Like I said it’s my personal game. When I actually receive income for that month (I’m receiving it this month obviously) then I do the formal budget with my wife.

      • Magess

        Because every once in awhile people buy things, and it’s nice to know when you’ll be able to do it.

  5. MamaHowell

    As a beginner to YNAB’s budgeting techniques, I have a question….We are paid weekly and are trying to catch up from some financial difficulties. I have been using Dave Ramsey’s Allocated spending sheets to make sure I pay everything we owe and not forget anything. What is the best way to manage this issue as a beginner with no buffer?

    • saveourskills

      the best way is to include the amounts you need for each payment for each month into the category name. Then to review your budget often. However when you see a $1 in your budget you need 100% confidence that there is $1 in a bank account somewhere to back it up.

      If your trying to determine a debt snowball i have written some free software that will do it for you and you can print it out as a PDF

      http://www.debtmd.com

      • Sarah

        Thank you for posting this website! I have already been using this technique of listing debt smallest to largest and paying accordingly. But having the whole plan printed out right in front of me gives me hope that there is an end to this debt! And sooner than I expected! Amazing!

  6. Eric

    I take issue with the thought that you can’t follow the rules if you don’t have a full month income as a buffer because it simply isn’t true. I do it all the time. And it seems somewhat reckless to suggest otherwise on this blog…

    Due to some unanticipated expenses, we had to dig into our buffer and now we’re only living off half a month income. I get paid on 15th (available this month) and 31st (available next month). We never have cash flow issues because we just use expenses on CC (for points, we pay it off) which provides an extra little buffer to make sure we can’t pay a bill with cash and we haven’t even come close to having a problem.

    The fact that my paychecks are fixed allows me to enter the cash as available for each month and I follow the rule and give every dollar a job, and we’re working back to the full month buffer.

    • mark

      Hi Eric –

      Sorry you got the impression that I was saying a person can’t live the Rules correctly without a full month buffer. I’m not saying that, because it’s not true! This post is about the potential problems that come with budgeting money that hasn’t arrived yet, that’s all.

      Sounds to me like you’re working YNAB perfectly.

      • Eric

        Wow I failed at reading comprehension. First, I thought for some reason that rule 1 was live off last month’s income. So when you talked about him breaking that – it’s what i was thinking of. Did that change?

        I also think I read that he was estimating income, not expenses.

        My apologies – thanks for the great blog posts.

      • mark

        No apology necessary! Rule 1 was to live on last month’s income, but Jesse and the team shifted it to Rule 4 a while back in acknowledgment of the fact that most of us spend a long time with the other three rules before we’re able to live on last month’s income.

        And thanks for the kind words about the posts. :)

  7. Ann

    We have embraced Rule 1 since starting YNAB in February, even if it means budgeting once a week, or even more. We are self-employed, and in debt. We get paid when our clients pay us. My goal is to only have to pay us twice a month, not every time we get a check, but to avoid using credit cards, we have to keep paying ourselves when we can and budget those dollars. Our first goal was to stop using credit cards and going further into debt. The best way was to stick to rule 1. And always ask ourselves “what does this money need to do before we get paid again.” The temptation to budget ahead is always there, but that is how we got into so much debt in the first place.

    The bliss is this: I never have to check the bank balance anymore.We spend according to the budget, and we both log transactions as they happen. It is the most financial relief I’ve had in a loooong time. I haven’t paid a late fee or overdraft fee since starting YNAB. We have a start of an emergency fund. We are paying a six month car insurance premium this month with money we already have. I know it will just get better and better. Without Rule 1, you might as well use another software, because the beauty of YNAB is not just the program, but the method.

    • mark

      Thanks for sharing your story, Ann. I love to hear about self-employed people prospering thanks to their own discipline and YNAB.

  8. Teresa

    I’m totally guilty of doing this, but I just don’t see how someone just starting, without a buffer, has much of a choice. When you get paid twice a month, but you have expenses that come out gradually through the whole month (gas, groceries, entertainment, clothing, personal care, etc), how do you enter a value for the entire month without worrying that on the 14th you’re going to have spent more than you have? To me, this sounds like going back to checking the bank balance every day as it gets close to the 15th. What am I missing?

    • mark

      Hi Teresa – you’re understanding me perfectly. The point of the post (although debated), is that you would NOT enter an amount for the whole month.

      When you get paid on the 1st of the month, you give those dollars jobs until there are no more dollars left to assign.

      As I mentioned in the post, my personal approach is to put the “normal” category amount and the due date in the category name, so a category name for me would be something like:

      “Student Loan $97.02 (27th)”

      If I don’t have the money at the beginning of the month to assign to that category, I leave it un-budgeted until more dollars come into the budget (in the form of another paycheck). Because I check my budget so frequently, nothing gets ignored or forgotten.

      I’m sure for all of us there are months where there’s not enough paycheck to cover the expenses, and we’re either pulling from savings, or using a credit card. Even in those cases, I don’t budget the money till it enters the budget.

      • softwaremonkey

        Mark,

        It seems to me, that if doing this is useful and practical, YNAB should take it one step further and integrate an amount and due-day (and months?) with each category as discreet fields.

        If I was doing this I would very much like to see the total of all these predetermined amounts for the reassurance that they at least approximate expected income.

        Also, given “I leave it un-budgeted until more dollars come into the budget”, that is a good argument for a suggestion I’ve made before to the YNAB team, which is to allow “0” to be explicitly budgeted instead of reverting the field to blank – precisely so that you can distinguish between having expressly decided to budget nothing that month and not yet having made a decision for that category.

    • Brenda

      We also get paid twice a month and this is how I worked that issue out: Average how much you used in past months on a category, say $200 for gas, $200 groceries, $100 clothing etc.. For the first half of the month, I budget $100 for gas, $100 groceries, $50 clothing & so on. When the mid-month pay rolls around, add the other half and finish your budget for the month. That way you’re only budgeting money you have and you shouldn’t have to check your bank balance every day if you live by it. Hope that helped!

    • Teresa

      Well now that you spell it out for me…that makes total sense!

      So my next question is, how do I start over when I have pending charges and all of that? I’m assuming it’s easiest if I can manage a couple of days at the end of the month where we don’t make any payments, and then just start fresh in June?

      Thank you both for the help!

      • mark

        If you’re making a fresh start, I’d attend the YNAB live class for people getting started with the software. You’re NOT a beginner, but I bet you’ll get a ton of insight and answers to your questions about dealing with pending transactions, etc.

      • Brenda

        Hmm, I guess it depends on what you mean by “pending”. Are they charges that you haven’t budgeted for but are coming out? Or things you’ve already put in your budget? I you’ve already put it in, you shouldn’t have to worry. For instance, I know by phone bill will be $50 so I budget it. When it’s automatically deducted (pending) from my account,I mark it in my register.

        If you’re looking to “fresh start” anyway, I don’t think it would really matter if you did it now or later. I would probably wait until the mid-month pay, just to keep it simpler for me.

        I just did a “fresh start” and it does save the old budget so if you need, you can go back.

  9. Anne Wheeldon

    I’ve never really understood this rule. If I get paid on 31st May and budget that income for June is that bad, should I be budgeting for July with that income? Or is that OK?

    • mark

      Hi Anne –

      If you get paid on May 31 and budget all the money for June, you’re “living on last month’s income.” That’s Rule 4, and yes, it’s great.

      This is how I’m paid (last business day of the month), and one of my goals is to be able to use that May paycheck in July instead of June. Not because it particularly matters, but because it will be proof that I’m inching further and further ahead of any sort of check to check danger zone.

      • Anne Wheeldon

        Hey Mark I don’t actually think it’s that great. I’d much rather have a month’s income in reserve “in case” and I thought that was what YNAB was advocating.

        It might be hard initially but it would certainly be less stressful over time. A part of each month’s income would need to be moved over to savings to ensure that the buffer existed. I suppose that happens with the budget in that annual bills are saved for and even long-term goals are saved for from within the budget but my budget account savings don’t attract much interest so I prefer to move them over to higher budget savings with better interest rates. But then they kinda get lost as part of the savings strategy?

      • mark

        The point you raise is oft-discussed by Jesse, Taylor and the team: “What does it really mean to have a buffer in place?”

        Being able to use April’s income to over June’s bills is obviously less stressful than using May’s income, so I’d say it’s a worth goal.

        As far as moving money into higher interest accounts:

        You can choose to have those accounts “on budget,” which keeps the money in play while still letting it attract that higher interest rate. Is that helpful?

      • Anne

        Thanks, yes. I think I don’t want what I could call “buffer” or “rainy day” savings included in the budget since they then become part of the “give every dollar a job / budget to zero rule. the money can quickly be transferred back to budget as income if required.

        Also, like some others, I budget a month or two ahead and before I have the income. I see this as a paper exercise that allows me to manage my money and plan for future savings and expenditure. I’m not actually spending from that budget until the income is in place to find it.

        The future budgets are then tweaked at the end of the month when the income gets entered.

        YNAB is an excellent budgeting tool. I really love it.

  10. Michael

    Mark, I see what you’re saying.

    But, I think then you should advocate that people payed twice per month should quickly build up a *half-month* buffer so that last paycheck is categorized as Income Available Next Month. It isn’t as nice as a full-month’s buffer, but it is a *lot* better than the alternative.

    In fact, I’ll think do that myself, even though I get paid monthly. I’ll split my check—a portion as available this month and a portion as available next month—until I get a full-month’s buffer.

    • mark

      Great thoughts, Michael. Build a Baby Buffer.

  11. Dave

    We budget once a month. We base our income on what we know will come in (I’m salaried so it’s pretty regular). There is often additional bits and bobs of income to come in which we don’t budget for and goes towards building our buffer.

    I think the glory of YNAB is that the method has four rules and although we might be breaking rule 1 in a technical sense, the other rules mean that in the last year we started YNAB with a net worth of -1kGBP we now have net worth of +2kGBP. We are happy campers and are using the method in a way that works for us!

    I guess it’s a tool not a religion ;)

  12. Rachel Ruhlen

    We aren’t sure if we have a 1 mth buffer or not. The way we work is we wait until payday (the last day of the month) to put together the next month’s budget. The problem is that gives us a narrow window to think about next month’s budget. We’re not budgeting monopoly money but I guess we should save up a month’s salary so that in May, we can put together June’s budget, instead of waiting until May 31 to build June’s budget? The salary is the same each month, so we can estimate June’s budget ahead of time…but then it’s monopoly money, right?

    • mark

      The simple answer is “never budget past $0″ meaning never let your “Available to Budget” go negative.

      But people shouldn’t get the idea that they’re going to YNAB jail if they do budget past $0.

      It’s a simple matter of acknowledging that as soon as you budget past $0, you’re taking on the mental responsibility of remembering which parts of your budget are “real” and which parts are estimates.

      I prefer to avoid extra mental overhead.

      And yes, in a perfect world you and I would both get to the point that May’s income would be spent in July. It’s a great goal to shoot for!

      • Anne Wheeldon

        Rachel I frequently put next month’s budget together before the money is in my account. I know pretty much how much is coming in and I find it easier to plan the expenses before the whole thing has started. Once the money arrives it all looks good.

        I’d really be happier if I could get to the point where I was working enough ahead of expenditure to have the money available all the time bi.e. pay arrives 31st May – not needed because pay that arrived 30th April is there to deal with June bills.

        In a sense the fact that I save from income every month means that the money is available for unexpected bills etc but it would be nice to have all that in budgeted accounts rather than
        accounts outside budget.

      • Richard Person

        So then, as long as the Current Month (May) is budget to zero and to total budgeted equals the total income (from April) then there is not funny money in May?

        I do have a standard budget set that I put into June (July, Aug-Dec) but I don’t consider it to be MY budget until that month arrives. I’m hoping I said that right so it makes sense.

  13. Magess

    I don’t understand how Rule 1 is at all helpful. It doesn’t tell me if I’ll be able to pay my bills. It doesn’t tell me how much I can afford to spend on food. It doesn’t tell me if I really need to check in with my freelance clients to try to pick up more work before the end of the month hits.

    The only way to know that is to budget my two monthly paychecks before I have them, set all my fixed expenses (which as I’ve said elsewhere is nearly everything, although this is apparently shocking), and determine which categories I can do without this month, if any.

    If all I did was assign the $300 in my bank account to my first two bills and a little food, I’d have no sense of what shortfalls I might run into. And no way to plan cash flow.

    The April was AWFUL. Moving expenses, taxes to be paid, parents to be paid back. The only way I didn’t freak out was by putting all of my income and all of my expenses in up front and adjust for the times that I *knew* money would be coming out. This let me know that the my tax bill was going to overdraft, so I could ask my mom for a week’s loan and plan when I could send it right back to her after the debits hit and the income hit.

    Planning ahead of time doesn’t mean I never look at it again. I look at it constantly, adjust expenses for when they actually hit my bank account, and adjust when I send money out for things that aren’t on a strict deadline based on whether I’ll overdraft or not.

    What this really suggests, actually, is not that Rule 1 is super important but that Rule 4 is. Because none of the above would happen if I had two paychecks just sitting in my account unused. (At which point I wouldn’t even know how to use YNAB anymore. I guess you’d just stop caring about the dates things happen?)

    My point is just that if you’re not a freelancer, you probably have a pretty predictable income. Why would you not want to parcel out at least the portions you have no control over (CC minimums, cable bill, cell phone bill, student loan, car insurance, rent, utilities [over which you have some control, but really any apt. or house has a base energy usage threshold, and the closer you get to it the less ability you have to lower your usage any further])? (Yes, you can lower each of those individually through plan choice, but at some point you have decided upon a limit that you can and must pay if you’re going to have them all, at which point it is a fixed fee you have no further control over. I don’t get cheaper internet by using it less, or get to skip a month if I just don’t use it, so you STILL know how much it’s going to cost you.)

    Since discretionary spending is the only spending you can actually adjust, what’s the point of not knowing your discretionary spending?

    • Rebecca Rice

      Let’s assume for a minute that you have $300 in the bank, and you know from past experience that you will have $1000 in bills this month. The point of Rule 1 is that it will tell you that, given the money you have right now, you CAN’T pay all your bills. So you better allocate that money to the bills you NEED to pay, and decide how you are going to handle the rest of your problems. Sell stuff? Get a second job for more income? Cut out some of those expenses (cancel the cable, etc.)? Because, in your situation, you borrowed money from your mom because you “knew” that you would be getting some money in a week. But what if that person stiffed you? Or there was a freak snowstorm and the check got delayed because all the roads were shut and the mail couldn’t get through? (Or, in the case of us people with regular paychecks… if you go to work Monday and get told “we’re laying off people… sorry to see you go”?) The point is that money you do not have in hand can’t be counted on, and thus shouldn’t be allocated to expenses that you know that you have. And yes, this does get easier when you have a buffer, and it really gets easier if you also stop using credit. That way things are paid for when you get them and you don’t need to worry about so many bills.

  14. Cate

    I used YNAB in the past and failed because I didn’t follow the suggested Rules – it became just a place to record. This time around, I think we’re doing it pretty well. My husband and I get paid every-other-week, and it happens to fall that we’ve got income coming in each week.

    I’ve labeled my bills on the budget with the amount (I have equal payment on pretty much everything) and the date due, so when our paychecks do come in, I can look at the dates and decide how far I need to make that paycheck work. Having these labeled like this is a HUGE help, because it takes out the guess work.

    My buffer is an ebb and flow right now, but I can see how it’s going to grow over the next 6 months and we’ll get to the point of living off of last months paycheck.

    I’m resisting the urge to “forcast” into the future, because I think it will only make me crazy. I’m happy trudging along, building up “rainy day” funds, and seeing balances grow.

    The classes have been extremely helpful to help me get set up again, and to keep from looking into that crystal ball. We lived too long with that crystal ball, and it wasn’t working for us.

    • mark

      Congrats on your momentum, Cate! Thanks for sharing your story.

  15. Mike

    I would enter this perspective for consideration, and I’ll use my own personal circumstances as the example.

    We’ve been doing YNAB since June of 2012. Since then, we’ve paid off our credit card, my wife’s student loans, and come February 2013, we will pay off the only car loan we have and the loan for a shop I built prior to YNAB I borrowed off my own 457 plan….at that point we will be debt free other than the mortgage on our home — which we plan on paying off in 9 years (26 years early). We have taken every vacation as a family since starting paid in advance, Christmas presents have been budgeted and paid for in advance. We have had to make cuts, choose where and how to spend our money — decide what our goals are, make some sacrifices…but we understand how powerful having this budget has been and will continue to be. All that being said…I believe we’ve been very successful in the last year, and will be to come. It’s been a great tool.

    NOW…

    I am paid twice a month. I am a salaried worker, that receives a base payment every month. Anything extra is just that…extra (ie overtime, etc.) I get paid for time I have already worked…that is I get paid in March for work I performed in February. When we started, I figured out what our ‘set’ monthly bills were, what our ‘averages’ for dynamic bills like utilities, and plugged those in. For income, I put in what my ‘minimum’ paycheck WILL BE for the work I’ve already done the month before. This is money I WILL HAVE. It’s as secure as the money I physically have sitting in the bank. This way, I already have my known expenses for the month along with my known income that I WILL RECEIVE. I’ve tweaked our budget so that now…we’re pretty dialed in…and we have reduced our monthly bills down far enough that if i make no “extra” money — we still are snowballing debt and making extra payments on our last remaining debts.

    We find it a great planning tool to be able to look at what actual money we will have to work with for the month we’re in. I have a very dynamic family (3 kids, 3 and under) and for those expenses that come up unexpectedly — we can then choose whether to use the money to meet those needs or to put toward our snowball. Because we have chosen to get rid of our debt before building our buffer as my job is very stable (relatively speaking comparatively) – I find it very appropriate and successful to use your entire monthly salary for which you will get paid as not only a planning tool, but also as a way to make sure you’re constantly making the right decisions for where the money is going to be best spent.

    I agree that you shouldn’t budget money you don’t have, but in circumstances like mine, and for people in similar circumstances I think it’s appropriate. It’s worked very well for us, and through YNAB we’ve been able to plan and save and eliminate debt and make our money work for us like never before.

    If circumstances were different…say, like an hourly based wage that may fluctuate weekly or even monthly…then I should say you should never budget it…because you may not GET IT. BUT…in our circumstance, I believe it’s totally appropriate and useful.

    Just my $.02..

    Thoughts?
    Cheers!

    • mark

      Hi Mike – thanks for your thoughts! And if it’s working – it’s working! Congrats on all your momentum.

  16. Kenza

    I find it difficult to manage my budget as I get paid on the 15th every month. On the 15th I’d budget for the whole month (say: April) but that crosses over to May. And in May , I also have the total budgeted amount for May.. (which is equivalent to May-money I don’t have yet). Is it possible to update the software so that we can start/customise our own period? (i.e. If I want my month to be: 15April to 15 May – it would be much cleaner that way.. and on the 15th of May it would allow me not to add the expenses of the second half of the month and change those values… Because in the end the spending adds up and we no longer know if it was from last period or the next? Is this something the team can have a look at?
    thanks

    • Teresa

      I have a similar problem sometimes when bills get paid a little early…say, a transaction actually goes through on April 30th that’s for a May bill. If I record it as actually happening on April 30th, it comes out of April’s budget…but there’s no way to assign it to May’s budget. I’ve been dealing with it by flubbing the date of the transaction and manually changing it to May 1st, but maybe there’s a better way to handle this?

      • Ben

        I try to send out monthly bills a few days before the end of the month, and sometimes I don’t mind a last-minute takeout ending up on next month’s budget :) But I definitely change dates on the budget to better reflect a monthly allocation – no shame in that if it accomplishes your task. I also sometimes delete tasks when an inflow and outflow net out but would confuse the budget.

  17. Michael Cabelin (@MichaelCabelin)

    This was my problem with budgeting. I was trying to budget for money that I simply did not have in hand yet. Even after switching to YNAB, I couldn’t stay on budget. Luckily while I was taking one of your online classes, the instructor mentioned ONLY budgeting for the paycheck you really have in the account.

    So instead of budgeting for the month and failing (again) I budgeted every two weeks when my bi-weekly paycheck direct deposited in my checking. Voila! It’s been almost a year now and I’ve been able to stay on budget! THANK YOU YNAB!

  18. Jason

    I really don’t understand why you guys have such a strong prejudice against forecasting. I can’t get by without it. In fact, I chose YNAB precisely because it makes it so easy to forecast as compared to other tools (I did my research).

    My income changes all the time, my expenses change all the time, and I get paid at intervals which change all the time. (I’m a freelance software designer who lives in two different countries). These intervals and changes in my income and costs are not necessarily unexpected – but they are quite irregular and I need some way to plan and adjust. The only way to make sure I don’t get into trouble is to forecast as far out as I can manage. That way I know how much I can afford to spend and how much I need to save at any given moment.

    I know what it’s like to not regularly forecast and adjust. That was my life pre-YNAB and there’s no way I’d go back to that!

    • Rebecca Rice

      I don’t think anyone is suggesting that forecasting is a bad thing. For example, I have a trip I want to take next year. I know roughly how much it will cost, so I can break that down into how much I need to save per month to be able to go. But there is no point in putting those numbers into YNAB’s budget, unless I am actually allocating the money at that time. Knowing that I need to put in $500 in December does me no good at all if I lose my job in October. If I lose my job in October, I will look at the money I have saved up for the trip and decide at that time whether to keep adding to it, let it ride, or reassign it to other, more pressing needs. So… forecast all you want. Just do it some where besides your real budget. I’ve heard of people who will actually “do” a yearlong budget to forecast, and then save that under a different name and have a “live” budget where they actually do the budgeting. Just a thought.

      • Jason

        Thank you Rebecca. I like that idea of having two budgets – one for the forecast (I really can’t live without it), and another for the actual budget. I’ll give it a try…

  19. Ben

    We are currently allocating all income to the following month, and thus living on last month’s income. However, I find it really useful to have the following month’s budget in view (easy because every month is basically the same, since we follow Rule 2) and watch the income of this month fill up the hole of next month.

    I don’t think it’s possible to really not spend a dollar you haven’t earned. If you’ve ever signed a mortgage for more than you have in the bank, you’ve already done that. And if somehow I make no money this month, I’m still going to have to pay my mortgage next month, along my kids’ tuitions and with plenty of other bills. That is what the emergency fund is for.

    But in a normal month, I’ll see the income filling up the next month, and in a great month, I’ll see it exceeding the budget. Either way, before the next month starts, we tweak the discretionary part of its budget to match the income from this month so that we allocate to zero.

  20. Dean

    I have one income, on the 17th. So I budget down to £0, no split monthly categories.
    My regular, monthly payments are paid 2/3 days after payday, so they are budgeted without stress. The rest is all up in the air, guessing where I’ll spend it.

    That’s not Monopoly money, but it does feel like I’m just tracking spending at the moment. Is there a way/method in YNAB to determine when the “financal month” starts, rather than just the 1st every month? I have no buffer because I’m decreasing my debt first.

  21. Marcel

    How come does Jesse know how regularly his customers are getting paid…?

  22. Casey Iiams-Hauser

    Hi Mark,

    Thanks for the blog post. I’ve been using YNAB since January, and I think I may do exactly what your friend does. I get paid twice a month. I don’t actually put the income in the budget, but I do know where it’s going to get spent, so I make the budget ahead. I don’t spend the money until the bills come due though.

    So, I have a question. Since I am supposed to look at each budgeting session by pay period and I get paid twice a month (around the 10th and the 24th) why is the default view monthly? It doesn’t really fit what we are supposed to be doing. I suppose it still works by carrying over the remaining to the next moth, but it would be helpful to have both a month and a “pay period” view to work with. If I’m supposed to set my budget by pay period it would be nice to do that in that view and then switch to monthly to see what my overall spending patterns have been.

    With the month view, it encourages behavior like your friend any myself when looking at a monthly view and working off a fairly regular salary.

    Just my 2 cents.

    Best,
    Casey

    • mark

      Hi Casey –

      I hear you, and this point is constantly being discussed by the YNAB powers that be. All I can say for the time being is to be fanatical about the principle of only working with dollars in hand. As this comment thread shows you, there are lots of ways to live the principle within the constructs of the software. Thanks for the feedback!

      • Fred Beiderbecke

        Prior to YNAB I had a spreadsheet with a column for each pay period and a list of bills. The week before getting paid (salaried, every two weeks), I would go out and figure out what was going where based on due dates etc. Which seems to be what you are advocating (just a week early). Since going to YNAB, I have been budgeting monthly but now I see that is not correct. If we only can budget what we have, the month periods are meaningless, the budget period should be to match your pay period.

  23. stevenkw (@stevenkw)

    So if I do a fresh start what do i do with the money that’s in the checking account already? Not all of it has a job yet it’s basically savings and emergency fund…

    • Richard

      Create a budget category for the emergency fund or savings and budget them. I had way too much money in my checking account when I started YNAB (six figures, I kid you not) so I created a New Car category and toploaded it with $35K. Now the funds are designated and will sit there unspent until I decide to buy a new car — with cash!

  24. William Disharoon

    This sounds like me. I’ve had to make a few fresh starts because I so mismanaged everything, and unfortunately lost my data once. I had done something similar: I estimated my bi-weekly paycheck a few months ahead. Aside from what Jesse mentioned, your budget is imaginary and doesn’t need to be honored, it also gives a false impression of how much you actually have in your account; I wasn’t sure if my checking account balance was accurate and balanced. I’ve known for years that I overspend in some categories and was determined to spend exponentially on some larger ticket items in the near future. It was all too easy with credit cards. I still have them but before YNAB – after a big time failure! – decided that I’ll pay them off month to month. What YNAB gave to me DID help culminate the knowledge that it wasn’t a possibility, as per my spending habits and income, to spend on those items. I since have given up on deciding to buy those things, but I still want them so much!

    I did do forecasting which showed me that my buffer would increase month to month according to my budget an income. If you do that, do it only to see how it will affect your buffer. You’ll realize early on that you are over budgeting.

    If someone out there is newer to YNAB – I’d highly recommend creating a budget and staying with that said budget – make your improvements next month. It will drive you bonkers fiddling with the numbers.

  25. Art

    On the YNAB Getting Started video I recently watched, the instructor noted there is a Schedule a Transaction register, at the bottom of the accounts register, where you can list upcoming inflows and outflows to your register. They become a part of your available budget money only when you activate them by clicking on them. This will work well for us as we have regular fixed income payments and many budgeted expenses (gas, electric, insurance)

  26. Harriet

    I am trying to decide if I should buy this software, and am having trouble understanding how it works. I took the intro class, and I’m still confused.

    The deal with us is that we have a year’s living expenses either in the bank or fairly easily accessible. I have set up all of our regular bills to be paid automatically. I keep track of all of this in my checkbook, generally recording payments way ahead of the time they are due. On the rare occasions when the balance runs a little too low in the checking account, I move money from savings to make sure there’s enough there. When I get an unexpected bill (e.g., medical co-pay), I pay it right away. If we want or need to buy something outside of regular expenses, we usually put it on a credit card for convenience (in fact, we use cards for almost everything), but I know the money is there to pay for it, and those CC bills are paid in full each month. I have operated this way for years, well before I got married.

    In essence, we ARE paying bills on previous income. We don’t have any debts other than mortgage. Included in the regular expenses are transfers into a savings account, with some of that earmarked for larger expenses later on (contributions to IRAs, home improvements).

    My interest in trying YNAB out was to get a better handle on where smaller amounts were going — for eating out and things like that. It’s not that we can’t pay for those things, but I have been feeling like we may be frittering money away without thinking about it.

    So is there anything YNAB can do for us that we’re not already doing? Thanks —

    • William Disharoon

      It’ll settle your curiosity firstly. Jesse also once posted in the blog of a guy who had made over 100k a year and had not a penny to show for it. What YNAB could do for you is to show you exactly what you’ve been spending, and can spend in the near future on discretionary things. I think it will make things clearer for those other purchases and spending on kids or grandkids. You’ll be a financial powerhouse with the aide of YNAB in other words.

    • mark

      Jesse is the founder of YNAB and author of the 4 Rules. Check out the YNAB company page for a full introduction.

      • roxyferg

        THanks Mark, yes I have done that now. Seem like a silly question! Thanks also for this link as I’m trying to get my husband to understand the “only budget the money you really have” rule. As we get paid every 2 weeks but most of our bills are monthly, he wanted to budget for the whole month with our entire future month’s income. I was struggling to explain to him why that is not a good idea, but this article helped. Thanks

  27. Scarlett

    Give it a go! The free trial gives you access to all the features for 35 days (correct me if I’m wrong on that number)

  28. LH

    What I did broke a zillion rules, but seems to have worked for us.

    Since I knew what the month before starting YNAB’s income was, I fiddled with things so that that was the amount to budget for the first month right away. No, the money didn’t all actually exist. I created a “Imaginary Money” category to keep track of this, and have it carry over between months. Realistically, this is my “building the buffer” category, but the advantage of making it up out of imaginary money is that I could IMMEDIATELY start budgeting based off of last month’s income.

    I allocated a small amount each month towards getting that imaginary money category GONE, and had my checking account tied to a no-fee overdraft account just-in-case. Yes, I did have to be a bit more careful to be sure that there was actually money in the checking account to cover things, but it just made the budgeting make so much more sense (to me, anyway).

    I think it worked for me because I am treating the budget slightly different than the actual accounts. In my mind, the budget is “I made x last month, it gets allocated to these categories this month,” where the accounts are “this is what money I actually have.” Eventually, of course, it would be nice if those are the same. :)

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