YNAB You Need A Budget

[CarriedBoost]

Hello,

New user here I have been using YNAB for only 2 weeks but loving it so far. Firstly both the desktop app and iphone app are awesome, same with the 4 rules and also I really enjoyed the 10 days of email tips. Was actually looking forward to reading it each day as it was informative and well written.

After setting up and using YNAB for 2 weeks I have found an extra $100 per week that was being wasted and my question is what should be my highest priority with these savings?

Pay off my existing debt as fast as possible or save for my buffer first? Or split any savings between the two? I found a few other posts on the forums but some got sidetracked or were for a specific situation.

As it stands I have approximately 10.5K debt on a credit card, paying off at a minimum 600 per month without incurring any new charges. Interest on this card is around $100 per month. My income each month is about 2900.

Thanks for your help!

[Turf_Hacker]

Hello,

New user here I have been using YNAB for only 2 weeks but loving it so far. Firstly both the desktop app and iphone app are awesome, same with the 4 rules and also I really enjoyed the 10 days of email tips. Was actually looking forward to reading it each day as it was informative and well written.

After setting up and using YNAB for 2 weeks I have found an extra $100 per week that was being wasted and my question is what should be my highest priority with these savings?

Pay off my existing debt as fast as possible or save for my buffer first? Or split any savings between the two? I found a few other posts on the forums but some got sidetracked or were for a specific situation.

As it stands I have approximately 10.5K debt on a credit card, paying off at a minimum 600 per month without incurring any new charges. Interest on this card is around $100 per month. My income each month is about 2900.

Thanks for your help!

Obviously the right answer is the one that makes the most sense to you and matches your priorities. Since the credit card payment is a huge fraction of your income (about 20%), you would realize a big boost in your amount available to budget each month by eliminating this debt. I would recommend putting most, if not all, of this money towards paying down the debt. If you choose to split this, using some to build your buffer is a good choice.

[jessiebird]

I'm going to agree with Turf Hacker on this. Get that debt out of your life!

(However, make sure you have some cash reserves so that if something comes up you won't need to use the credit card for it.)

[brad]

Agreed with the previous two posters here. There are two basic ways to approach this question: from a total bottom line perspective (in which case paying off the debt clearly wins) and the real-life-human-nature perspective (in which case the choices are more difficult). From a pure bottom line perspective paying off the debt will ultimately leave you with more money in your pocket because you will throw away less money in interest. But not having a cushion is risky because life is unpredictable and there's always a chance that some unplanned expense will come up that forces you even deeper into debt. And there's a strong psychological benefit to having a cushion -- it's a positive reinforcement, it feels good, it makes you feel like you've made progress and have some stability, and thus it prompts you to save even more and be even smarter with your money.

You can work on both goals simultaneously, it'll just take longer to reach them. You'll pay a bit more in interest on your debt, but you'll also make progress toward your buffer.

[Turf_Hacker]

I'm going to agree with Turf Hacker on this. Get that debt out of your life!

(However, make sure you have some cash reserves so that if something comes up you won't need to use the credit card for it.)

I normally mention this idea when I answer questions like this, not sure why I didn't this time. You may want to concentrate on building up a small emergency fund $1,000 - $2,000 before really tackling the debt with gusto. The purpose of this emergency fund is to help you cover unforeseen events without relying on the credit card to pay for it.

[RandomHandle]

I normally mention this, a buffer can act like a mini-emergency fund. You can always go off-buffer if you get in a bind.

[mailman-zero]

All I can say is that I struggled for nearly five years with YNAB to get on a plan to pay off debt without a buffer. Once I drew the line in the sand and made the buffer a priority, I realized that the stability and ease of planning that the buffer brought made it much easier for me to plan for periodic large purchases and for emergencies. Those things always pushed me back into using the credit card again. So I would recommend based on my own experience to build the buffer first. This may not be the best strategy for you, but it has certainly worked out well for me.

In hindsight, simply having a cushion of half of a month's income probably would have been enough of a buffer for me to be successful. In any case, living too close to the edge of the cliff can make it really difficult to stick to a written budget without using the card again.

[jessiebird]

In hindsight, simply having a cushion of half of a month's income probably would have been enough of a buffer for me to be successful.

This is where we're at right now, and it has made things much easier. And because that amount makes us feel secure enough, we are now concentrating on the debt for a while before we finish building the buffer. But of course, people have to do what they are comfortable with.

[tindelsurf]

I had a similiar question when I first started YNAB... the advise that was given to me, that I'll give to you is... do what helps you sleep better at night. If having a bit larger buffer is what does it - do that. If paying down your debt helps you sleep, do that. Some mixture of the two... do that.

[litterbug]

I normally mention this, a buffer can act like a mini-emergency fund. You can always go off-buffer if you get in a bind.

Building a buffer that's also an emergency fund when you don't already have cash reserves is likely to be very frustrating, because whenever an unplanned-for expense comes up, you'll feel like you're backsliding. What you want to experience is success, not stress because you seem to be failing to meet your goals

My recommendation is always to establish rainy day funds to cover periodic expenses (or "lumps"). List them all out, set goal amounts for all of them, and budget a set amount to them every budget period. I did this at the same time I started building my buffer. I was able to build up a few thousand in these funds, and because the biggest were more like emergency funds (big car repairs and such), I felt good about dedicating other money toward the buffer.

My buffer is one full month's income sitting in the bank on the first of the month, so I can budget the entire month at once. If I had to 'break' my buffer, I'd put the remainder into a buffer category (that was my method of building it), build it up again, and then re-release it into the budget to do its job.

Assuming you're building rainy day funds or at least have a $1000 or $2000 mini e-fund, it is indeed a matter of what will make you feel more secure and prosperous. A buffer is a great tool because it simplifies your budgeting. A big honkin' income replacement fund is a great tool because it makes you feel secure. Accelerating debt payoff is very satisfying, especially if that $10500 is driving you mad.

Gee, that wasn't very helpful, was it?

[CarriedBoost]

Thanks everyone for your replies and insights.

I think I'll use the general consensus strategy to make paying off the debt my first priorIty and as I have no emergency fund at all I will also save 500 which should be enough to cover any unexpected costs that I haven't budgeted for.

One thing I have in my favour is that I should have at least 500 dollars backpay coming to me within the next few weeks so I can use this as an e-fund and really start to make a dent in this debt.

Thanks for your help!