Alright, we’ve covered Rule One. Hopefully you’re chomping at the bit, waiting to be able to live one month behind your income. Your coworkers are wondering why you’ve been acting so crazy these past few days. You brought your lunch to work, avoided the vending machines (workplace highway robbery), and have been looking for a carpool buddy. You are the office weird-o. Perfect! Everything’s going according to plan.

We’ve also covered the basics of a budget. You have your inflows, and your outflows. Right in there, sandwiched between the two pieces of rye, is Rule Two: Give Every Dollar a Job. YOU are the boss.

Imagine a business where there are no defined job descriptions. Everyone just kind of comes and goes as they please. Some days you might find an engineer working on a marketing plan. The next day he could be over in finance figuring out how to account for a lease. The marketing employees love spending time on the factory floor because of all the big, shiny machinery. The accountants (with all their personality) enjoy spending their time trying to sell the product to customers (imagine how well that’s going). Occasionally you might find a purchasing agent in discussion with the product design team about a cheaper, stronger material he read about on the internet…

I think you get the picture. This is not a company that has mastered cross-functional team theory. This is a company with no defined employee responsibilities. You wouldn’t want to work there – and your job wouldn’t last long if you did. It is only a matter of time before a company without properly defined roles is going under.

A household, where the dollars’ roles are not properly defined is similarly destined to fail financially.

In the old days, devoted budgeters used envelopes to assign jobs to their dollars. That was pretty straight-forward; the dollar, sitting in the “groceries” envelope, knew exactly what to do, and when to do it.

In our much-more-modernized society (that, ironically, has not improved so much on the budgeting front), we don’t seem to manage well with a lot of cash. I personally have tried the envelope system with a few select spending categories (groceries was the big one) and failed miserably. I would forget the envelope. Have I ever forgotten my debit card? Not one time.

But does that mean our dollars can just go about their business doing whatever they please?

Not even a little bit.

With spending apparently easier now than in the past (broader access to credit), it has become even more important that we consciously assign each dollar that comes into our hands a job to do for the month.

For instance, let’s say that $2,000 comes into your hands during the month. You must assign each and every single, solitary dollar a job. Some will go toward rent, and do their job during that very month. Other dollars will go to savings, where their job is to recruit new employees (read: interest) and train them to do the same. Some dollars have the job of just being “ready” for an emergency (much like firemen, right?). You’ll have some dollars that sit around for six to twelve months before finally doing something (saving up in anticipation of car insurance premiums, and Christmas fund come to mind). Every dollar still does something. No dollar goes without a job.

View this video of Rule Two in Action with the YNAB software.

Ever.

Well, almost never.

When my wife and I first started budgeting, we made the same mistake most beginning budgeters make. We didn’t give ourselves any breathing room. I have to give credit to my wife though – she was much more dedicated than I was. I started to notice that I was stressed about money. I was stressed about spending it. I was stressed we wouldn’t have enough of it. Frankly, it was getting to me a little bit at a time. I felt like I couldn’t justify spending money on anything.

This is a dangerous situation. My wife handled it much better than I did. She’s naturally much more frugal than I am…I was struggling!

We were assigning every single dollar a job. Every job appeared so important! I felt like I couldn’t just go grab a candy bar if I wanted one. I felt constricted. After a month or two of working like this, I talked with my wife about it. I came to find out that she was also pretty stressed about our money situation. We decided then and there that each of us would get a little bit of “fun” money. Money we could just spend on whatever we wanted – without being accountable to the other person. In sticking with our company metaphor, you could say that this fun money is unemployed.

The amazing part about this principle is that the amount does not need to be a lot – but it does need to be there! We settled on five dollars each per month. That was all I needed. Five lousy dollars and I felt like I could buy the world. The principle of assigning each dollar a job can work for or against you. Make sure you learn from mine and my wife’s experience. Everyone needs a bit of breathing room!

You might consider a realistic unemployment rate for your personal economy. Is unemployment better? Certainly not. But it’s realistic. And I’ve found too often that when people are unrealistic with their budgeting (as my wife and I were), they crash and burn. They give up. Why? You can’t do unrealistic things for a significant amount of timewhen you’re living in a brutally realistic world. So what exactly does an unemployed dollar do? Well, my wife gets a few of them, I get a few of them. And we can basically do whatever we want with them. They’re unemployed. It really doesn’t matter to me what she buys, and it doesn’t matter to her what I buy (with the fun money). She doesn’t tell me when she has bought anything. I don’t tell her when I have. Unemployed dollars don’t report to any boss except you.

The intentional lack of accountability to your spouse is key. It doesn’t matter if one of you is the complete breadwinner of the family – it’s the household money – not the breadwinner’s money. Once it hits the budget, it belongs to the household. Only once you assign fun money to each other do you once again have your “own” money.

(Guys, a very romantic thing to do is to spend your fun money on your wife.)

Remember: when you’re employing every dollar of your personal economy, make sure to un-employ a few too. It will more closely align your ideal world of money with the real world of money. Where do you eventually want most of your dollars working? In the Savings Department. In that department they’re extremely useful. They find other dollars to employ on their own, and teach these new dollars the ropes (find more dollars, and teach them to find more dollars). The Savings Department is a beautiful thing. Where do you absolutely need dollars? In the Emergency Department. These dollars aren’t there to find other dollars. They’re simply in charge of maintaining your Disaster Relief Plan. They shouldn’t be employed in other departments. And they should never, ever be unemployed (used for “fun”). Because we’re in this technologically progressive (and fiscally-irresponsible) society, you need to use something that will allow you to assign your dollars their jobs with ease. You can use a pencil and paper, some software, envelopes, a chalkboard – whatever. Just make sure your dollars are being assigned! When I created our software solution, it was imperative that it was easy to use. Keep that in mind as you choose your own solution. It needs to be user-friendly (and preferably cheap).

I can’t stress enough how important it is to have your dollars working for you instead of just doing their own thing. As you implement Rule Two, you’ll notice that your dollars work harder, longer, and stronger for you. They’re more efficient. They don’t put up a fight. They do what they’re told. They’re basically the opposite of your teenager.

Now, we talked a lot about assigning your dollars jobs, but we didn’t mention the process by which you do that. Tomorrow will be a special day because we’re going to focus specifically on budgeting in a marriage. If you’re single, well, tomorrow you’ll learn what you’ll do once you’re married (or you can take a day off).