YNAB You Need A Budget

[momonga]

Hi,

I am new to all this and was wondering how I can build a buffer if I am living off a line of credit? I am a med student with no income and a line of credit (that charges interests monthly), and thus was wondering how I could do to implement a buffer since:

a) I dont have a fixed income (I can dig as deep as I want, but I know that if I do, it'll cost me an arm and eventually a leg)
b) I dont have income at all (thus shouldnt I pay the line of credit before putting up a buffer... which would be virtual anyway right, since its borrowed money?).

I only have debts, loan, line of credit and living/school expenses (roughly).

Can anyone shed light on this?

[chrish]

In this situation, I would decide on my "income" (aka borrowing) for the month before it starts. For instance, I could say I'm going to borrow $3000 in Aug. Then I would budget that $3000 down to $0. I would push to use less, but know that whatever I set was the limit for that month. Then repeat the next month. This would be a pseudo buffer, as you would be able to do your full budget at the beginning of the month, unfortunately you are doing it with borrowed money.

[barnabycourt]

I agree about deciding what your income would be each month. I would put all the money from your line of credit into a single category. (Savings: Line Of Credit). Then each month I would budget a negative number for that category of the amount of money I planned on spending for them month. That will free up the money to allocate to other categories. To use fake numbers:

Month one
Savings- Line of Credit 10,000
Food: 0
Transportation: 0
Rent: 0

Month 2:
Savings- Line of Credit -1,000 (Balance 9,000)
Food: 300
Transportation: 100
Rent: 600

Month 2:
Savings- Line of Credit -1,000 (Balance 8,000)
Food: 300
Transportation: 100
Rent: 600

etc.

[momonga]

Oh, I see...

Thanks for the tip.... REALLY helpful!

Now, If I do that, and allocate for example 1000$ (I live with 3 roomates so it wont cost that much I hope...), should I still keep the 1000$ and try to go for a buffer or should I just like, try to shave money off the 1000$ for budgetting (ex: month 1 costs me like 800$, so I just use 850 or 900 for the second month, then see what happens and try to cut it as much as possible to have a tight budget?).

[barnabycourt]

Hi, It might not be part of the official "rules" but I would always recommend budgeting based on the known cost even if there might be offsets. For example:

Month 1:
Rent: 1000
- Paid rent: $1,000
+ Money from room mate categorized as "Rent": $100
End of Month "Rent" category balance: $100

Month 2:
Rent: 900 (900 + 100 category balance from previous month = 1,000 total)
- Paid rent: $1,000
+ Money from room mate categorized as "Rent": $150
End of Month "Rent" category balance: $150

Month 3:
Rent: 850 (850 + 150 category balance from previous month = 1,000 total)
...

That is how I would personally handle something like rent. In a general way as long as you are living off of the line of credit and until your income is greater than your expenses then everything left over at the end of the moth goes back into the line of credit. Today, your line of credit is your buffer and you are just working to finish school & get your cash flow positive before that credit runs out. Think of it this way, every dollar you don't spend today is one that you are not paying interest on until you pay off the line of credit.

Some of it also depends on the line of credit. If you have to make a payment for the line of credit each month then you need to make sure you have enough income each month or enough cash reserves (outside of the line of credit) to make the monthly payment for the line of credit.

[momonga]

Thanks a lot, this clears up a lot of things for me